Margin Regulation and Stock Market Volatility

Margin Regulation and Stock Market Volatility

  • DAVID A. HSIEH
  • MERTON H. MILLER

Article first published online: 30th April 2012 DOI: 10.1111/j.1540-6261.1990.tb05078.x

Abstract


Using daily and monthly stock returns we find no convincing evidence that Federal Reserve margin requirements have served to dampen stock market volatility. The contrary conclusion, expressed in recent papers by Hardouvelis (1988a, b), is traced to flaws in his test design. We do detect the expected negative relation between margin requirements and the amount of margin credit outstanding. We also confirm the recent finding by Schwert (1988) that changes in margin requirements by the Fed have tended to rather than lead changes in market volatility.

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