Margin Debt and Portfolio Margin Requirements

19 Pages Posted: 9 Dec 2013 Last revised: 10 Jun 2014

See all articles by Dmytro Matsypura

Dmytro Matsypura

University of Sydney

Laurent L. Pauwels

NYU Abu Dhabi; The University of Sydney; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

Date Written: February 12, 2014

Abstract

This paper investigates the effects of a change in the margin rules of the U.S. stock market. These rules determine how much investors can borrow to leverage their investments. Since the 1929 stock market crash, margin loans have been tightly regulated by the Securities and Exchange Act Regulation T. Between 2005 and 2008, the Securities and Exchange Commission modified these margin rules because they were perceived as not adequately reflecting investment risk. The amended rules have made it more attractive for investors to borrow by opening new margin accounts and diversifying their investment positions. This paper tests the hypothesis that the change in the margin rules has increased margin debt across the U.S. stock market. It provides statistical evidence that this structural change can be dated to the amendments in the rules. Since the 2008 financial crisis, margin debt has increased rapidly, reaching previously unseen levels. This worrying trend has been intensified by record low interest rates and rising stock values. These facts present new incentives for reassessing the efficacy of margin rules and margin requirements.

Keywords: margin debt, margin requirements, portfolio margining, financial regulations, structural change, U.S. stock market

JEL Classification: G18, G28

Suggested Citation

Matsypura, Dmytro and Pauwels, Laurent L., Margin Debt and Portfolio Margin Requirements (February 12, 2014). Available at SSRN: https://ssrn.com/abstract=2364900 or http://dx.doi.org/10.2139/ssrn.2364900

Dmytro Matsypura

University of Sydney ( email )

Room 478 Merewether Building H04
Sydney Uni Business School
Darlington, MA NSW 2006
Australia
9351 3945 (Phone)
9351 3945 (Fax)

Laurent L. Pauwels (Contact Author)

NYU Abu Dhabi ( email )

PO Box 129188
Abu Dhabi
United Arab Emirates

The University of Sydney ( email )

University of Sydney
Sydney, NSW 2006
Australia

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) ( email )

ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Australia

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