On the Effectiveness of the Federal Reserve's Margin Requirement

Dudley G. Luckett

43 citations0/0 files storedThe Journal of Finance

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Financial Markets and Investment Strategies Banking stability, regulation, efficiency Corporate Finance and Governance

Abstract

A portfolio-theoretic model of the optimal margin account is developed. It is argued that the Federal Reserve's goal in setting the margin requirement is to influence investor equity ratios. Using the average equity ratio as the dependent variable and the arguments of the model as independent variables, an empirical model is estimated. It is concluded that the margin requirement is an effective regulatory tool.

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1956The Introduction of Risk into a Programming Model 1975Cyclical variations in the risk structure of interest rates 1966Stock Market Margin Requirements

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2001Margin lending and stock market volatility 1992The Microstructure of Asian Equity Markets

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