Margin regulation and volatility

Johannes Brumm, Michael Grill, Felix Kubler and Karl Schmedders

Journal of Monetary Economics, 2015, vol. 75, issue C, 54-68

Abstract: An infinite-horizon asset-pricing model with heterogeneous agents and collateral constraints can explain why adjustments in stock market margins under US Regulation T had an economically insignificant impact on market volatility. In the model, raising the margin requirement for one asset class may barely affect its volatility if investors have access to another, unregulated class of collateralizable assets. Through spillovers, however, the volatility of the other asset class may substantially decrease. A very strong dampening effect on all assets׳ return volatilities can be achieved by a countercyclical regulation of all markets.

Keywords: Collateral constraints; General equilibrium; Heterogeneous agents; Margin requirements; Regulation T (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304393214001834
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Margin regulation and volatility (2014)
Working Paper: Margin Regulation and Volatility (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:75:y:2015:i:c:p:54-68

DOI: 10.1016/j.jmoneco.2014.12.007

Access Statistics for this article

Journal of Monetary Economics is currently edited by R. G. King and C. I. Plosser

More articles in Journal of Monetary Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().