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- Title
Animal Spirits, Margin Requirements, and Stock Price Volatility.
- Authors
Kupiec, Paul K.; Sharpe, Steven A.
- Abstract
A simple overlapping generations model is used to characterize the effects of initial margin requirements on the volatility of risky asset prices. Investors are assumed to exhibit heterogeneous preferences for risk-bearing, the distribution of which evolves stochastically across generations. This framework is used to show that imposing a binding initial margin requirement may either increase or decrease stock price volatility, depending upon the microeconomic structure behind fluctuations in economy-wide average risk-bearing propensity. The ambiguous effect on volatility similarly arises when the source of heterogeneity is noise trader beliefs.
- Subjects
STOCK prices; PRICES of securities; MARGIN requirements; MARKET volatility; ASSETS (Accounting); RATE of return; MATHEMATICAL models of finance; FINANCIAL markets; RISK assessment; STOCHASTIC processes
- Publication
Journal of Finance (Wiley-Blackwell), 1991, Vol 46, Issue 2, p717
- ISSN
0022-1082
- Publication type
Article
- DOI
10.1111/j.1540-6261.1991.tb02682.x