The Federal Reserve Board eagle logo links to home page
Finance and Economics Discussion Series
The Finance and Economics Discussion Series logo links to FEDS home page Margin Requirements, Volatility, and Market Integrity: What Have We Learned since the Crash?
Paul H. Kupiec

Abstract: 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.

Keywords: Margin requirements, volatility, leverage

Full paper (265 KB PDF) | Full paper (264 KB Postscript)

Home | Economic research and data | FR working papers | FEDS | 1997 FEDS papers
To comment on this site, please fill out our feedback form.
Last update: July 16, 1997