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Stock margins and the condition probability of price reversals

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  • Paul Kofman
  • James T. Moser

Abstract

Does the cost of trading affect stock prices? Yes, according to the evidence in this article. The authors find that high costs seem to reduce the frequency of price reversals.

Suggested Citation

  • Paul Kofman & James T. Moser, 2001. "Stock margins and the condition probability of price reversals," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 25(Q III), pages 2-12.
    • Handle: RePEc:fip:fedhep:y:2001:i:qiii:p:2-12:n:v.25no.3
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    References listed on IDEAS

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    1. Hsieh, David A & Miller, Merton H, 1990. "Margin Regulation and Stock Market Volatility," Journal of Finance, American Finance Association, vol. 45(1), pages 3-29, March.
    2. John Y. Campbell & Sanford J. Grossman & Jiang Wang, 1993. "Trading Volume and Serial Correlation in Stock Returns," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(4), pages 905-939.
    3. De Long, J Bradford, et al, 1990. "Positive Feedback Investment Strategies and Destabilizing Rational Speculation," Journal of Finance, American Finance Association, vol. 45(2), pages 379-395, June.
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    6. Hardouvelis, Gikas A, 1990. "Margin Requirements, Volatility, and the Transitory Components of Stock Prices," American Economic Review, American Economic Association, vol. 80(4), pages 736-762, September.
    7. Summers, L.H. & Summers, V.P., 1989. "When Financial Markets Work Too Well : A Cautious Case For A Securities Transactions Tax," Papers t12, Columbia - Center for Futures Markets.
    8. Bessembinder, Hendrik & Seguin, Paul J., 1993. "Price Volatility, Trading Volume, and Market Depth: Evidence from Futures Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(1), pages 21-39, March.
    9. Lo, Andrew W. & Craig MacKinlay, A., 1990. "An econometric analysis of nonsynchronous trading," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 181-211.
    10. James T. Moser, 1992. "Determining margin for futures contracts: the role of private interests and the relevance of excess volatility," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 16(Mar), pages 2-18.
    11. Stoll, Hans R & Whaley, Robert E, 1990. "Program Trading and Individual Stock Returns: Ingredients of the Triple-Witching Brew," The Journal of Business, University of Chicago Press, vol. 63(1), pages 165-192, January.
    12. Anat R. Admati, Paul Pfleiderer, 1988. "A Theory of Intraday Patterns: Volume and Price Variability," The Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 3-40.
    13. Summers, Lawrence H, 1986. "Does the Stock Market Rationally Reflect Fundamental Values?," Journal of Finance, American Finance Association, vol. 41(3), pages 591-601, July.
    14. Salinger, M.A., 1989. "Stock Market Margin Requirements And Volatility: Implications For Regulation Of Stock Index Futures," Papers t4, Columbia - Center for Futures Markets.
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    Cited by:

    1. Alexander, Gordon J. & Ors, Evren & Peterson, Mark A. & Seguin, Paul J., 2004. "Margin regulation and market quality: a microstructure analysis," Journal of Corporate Finance, Elsevier, vol. 10(4), pages 549-574, September.
    2. Tibor Neugebauer & Sascha Füllbrunn, 2013. "Deflating Bubbles in Experimental Asset Markets: Comparative Statics of Margin Regulations," LSF Research Working Paper Series 13-14, Luxembourg School of Finance, University of Luxembourg.
    3. Peter Fortune, 2001. "Margin lending and stock market volatility," New England Economic Review, Federal Reserve Bank of Boston, pages 3-25.
    4. Füllbrunn, Sascha & Neugebauer, Tibor, 2022. "Testing market regulations in experimental asset markets – The case of margin purchases," Journal of Economic Behavior & Organization, Elsevier, vol. 200(C), pages 1160-1183.

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    Stocks; Stock - Prices;

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