Broker-dealer Leverage and the Stock Market

Apostolos Serletis and Khandokar Istiak
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Khandokar Istiak: University of South Alabama

Open Economies Review, 2018, vol. 29, issue 2, No 2, 215-222

Abstract: Abstract This paper employs linear and nonlinear causality tests to examine (for the first time) the dynamic relation between broker-dealer leverage and the stock market in the United States, using quarterly data since 1967. We find significant linear causality from the stock market to broker-dealer leverage and a nonlinear feedback from broker-dealer leverage to the stock market, supporting the view that the macro economy is highly nonlinear. This bidirectional causality shows that a stock market crash might happen long before a fall in fundamental asset values.

Keywords: Broker-dealer leverage; Nonlinear causality; Nonlinearities (search for similar items in EconPapers)
JEL-codes: C12 C51 F42 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11079-017-9448-x

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