The Differential Impact of Federal Reserve Margin Requirements on Stock Return Volatility |
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| Authors: | Raman Kumar Stephen P Ferris Don M Chance |
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| Institution: | Virginia Polytechnic Institute and State University, Blacksburg, VA 24061.;University of Pittsburgh, Pittsburgh, PA 15260, and Virginia Polytechnic Institute and State University, Blacksburg, VA 24061. We would like to thank David Hsieh and Paul Kupiec for their useful comments on an earlier version of this study. |
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| Abstract: | This study examines the effect of changes in margin requirements on stock price volatility. We examine the possibility that the impact of margin requirements varies with a stock's degree of speculative interest. Using four alternative measures of speculative interest, we divide our sample into ten portfolios. We find no consistent evidence of a relationship between margin requirements and changes in volatility for any portfolio. The inconsistent and often contradictory results produced by these changes question its usefulness by Federal Reserve decision makers. |
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