June 1997

Margin Requirements, Volatility, and Market Integrity: What Have We Learned since the Crash?

Paul H. Kupiec


This study assesses the state of the policy debate that surrounds the federal regulation of margin requirements. A relatively comprehensive review of the literature finds no undisputed evidence that supports the hypothesis that margin requirements can be used to control stock return volatility and correspondingly little evidence that suggests that margin-related leverage is an important underlying source of "excess" volatility. The evidence does not support the hypothesis that there is a stable inverse relationship between the level of Regulation T margin requirements and stock returns volatility nor does it support the hypothesis that the leverage advantage in equity derivative products is a source of additional returns volatility in the stock market.

Full paper (264 KB Postscript)

Keywords: Margin requirements, volatility, leverage

PDF: Full Paper

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