The Differential Impact of Federal Reserve Margin Requirements on Stock Return Volatility.

This study examines the effect of changes in margin requirements on stock price volatility. The authors examine the possibility that the impact of margin requirements varies with a stock's degree of speculative interest. Using four alternative measures of speculative interest, the authors divide their sample into ten portfolios. They find no consistent evidence of a relationship between margin requirements and changes in volatility for any portfolio. The inconsistent and often contradictory results produced by these changes question its usefulness by Federal Reserve decisionmakers. Copyright 1991 by MIT Press.