Get access
Advertisement

The Irrelevance of Margin: Evidence from the Crash of ‘87

Authors

  • PAUL J. SEGUIN,

    Search for more papers by this author
    • Seguin is from the University of Michigan and Jarrell is from the University of Rochester. This research was performed while the first author was the T. Boone Pickens Jr. Research Fellow at the Bradley Policy Research Center, University of Rochester. We thank Hank Bessembinder, Peter Carr, Tony Greig, Ming-chi Hu, Shing-yang Hu, Margaret Monroe, James T. Moser, Andrei Shleifer, Doug Skinner, René Stulz, two anonymous referees, and participants at the 1991 W. E. A. Annual Meetings for their creative input.

  • GREGG A. JARRELL

    Search for more papers by this author
    • Seguin is from the University of Michigan and Jarrell is from the University of Rochester. This research was performed while the first author was the T. Boone Pickens Jr. Research Fellow at the Bradley Policy Research Center, University of Rochester. We thank Hank Bessembinder, Peter Carr, Tony Greig, Ming-chi Hu, Shing-yang Hu, Margaret Monroe, James T. Moser, Andrei Shleifer, Doug Skinner, René Stulz, two anonymous referees, and participants at the 1991 W. E. A. Annual Meetings for their creative input.


ABSTRACT

Following the crash of 1987, one contentious regulatory issue has been whether margin activity exacerbated the decline in equity values. We contrast the crash behavior of NASDAQ securities eligible for margin trading with the behavior of ineligible ones. Consistent with the hypothesis that margin-eligible securities were more frequently subjected to margin calls and forced sales, we find that abnormal volumes were uniformly larger for eligible securities. However, there is no evidence that this activity provoked additional price depreciation. Margin-eligible securities actually fell by one percent less than the ineligible securities over the period.

Get access to the full text of this article

Ancillary