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- Title
Initial Margin Requirements and Market Efficiency.
- Authors
Akbas, Ferhat; Ay, Lezgin; Koch, Paul D.
- Abstract
We examine the association between margin requirements and the market's efficiency in incorporating firm-specific and market-level public news. Combining the Fed's 22 changes in margin requirements with a hand-collected sample of earnings announcements between 1934 and 1975, we show that higher margin requirements induce greater delay in incorporating earnings information into prices. We draw similar conclusions when we analyze the Hou and Moskowitz (2005) price delay measure, as well as indirect measures of leverage constraints over recent years. Further tests suggest that, despite the Fed's expressed intent to curtail excess speculation, higher margin requirements restrict trading by arbitrageurs more than noise traders.
- Subjects
EFFICIENT market theory; CAPITAL market; FINANCIAL markets; STOCK exchanges; BOARD of Governors of the Federal Reserve System (U.S.); EARNINGS announcements; PRICING; THEORY of constraints
- Publication
Journal of Financial & Quantitative Analysis, 2024, Vol 59, Issue 1, p249
- ISSN
0022-1090
- Publication type
Article
- DOI
10.1017/S002210902300100X