Policy on the margin: Evaluating the impact of margin debt requirements on stock valuations |
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Authors: | Christian E Weller |
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Institution: | (1) Economic Policy Institute, Washington DC;(2) Center for European Integration Studies, University of Bonn, Germany |
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Abstract: | Rapidly rising stock prices in the 1990s raised worries about potential inflationary or destabilizing effects. The use of
initial margin debt requirements by the Federal Reserve was proposed to reduce the run-up in stock prices. This paper evaluates
the likely impact of margin debt requirements on stock valuations. The results suggest that higher margin requirements would
have had no impact on stock market valuations in the 1990s, Moreover, other forms of consumer credit are relatively more important
in determining household equity positions than margin debt, making the control of margin debt not an obvious public policy
choice.(JEL E58, G18) |
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Keywords: | |
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