Journal of Finance Vol. 46 No. 2 1991
Animal Spirits, Margin Requirements, and Stock Price Volatility.
Abstract
A simple overlapping generations model is used to characterize the effects of initial margin requirements in the volatility of risky asset prices. Investors are assumed to exhibit heterogenous preferences for risk-bearing, the distribution of which evolves stochastically across generations. This framework is used to show that imposing a binding initial marginal requirement may either increase or decrease stock price volatility, depending upon the microeconomic structure behind fluctuations in economywide average risk-bearing propensity. The ambiguous effect on volatility similarly arises when the source of heterogeneity is noise trader beliefs.
- Volume
- 46
- Issue
- 2
- Pages
- 717-31
- Sources
- bibtex:phds-export.bib