Margin requirements and equilibrium asset prices [An article from: Journal of Monetary Economics]

This digital document is a journal article from Journal of Monetary Economics, published by Elsevier in 2005. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
This paper studies the effect of margin requirements on asset prices and trading volume in a general equilibrium asset pricing model where Epstein-Zin investors differ in their degree of risk aversion. Under the assumptions of unit intertemporal elasticity of substitution and zero net supply of riskless assets, I show analytically that binding margin requirements do not affect stock prices. This result stands in contrast to previous partial equilibrium analysis where fixed margin requirements increase the volatility of stock prices. In this framework, binding margin requirements induce a fall in the riskless rate, increase its volatility, and increase stock trading volume.