Very interesting. Of course, the citation of "research" here is somewhat disingenuous; the research AG is referring to here is usually focused on "volatility" as measured by daily standard deviation of log changes in stock prices (or worse, in stock index values) and has really very little to do with bubbles. It certainly doesn't support the implicit theory that use of margin is driven by demand rather than supply, and that people would be just as happy taking out a big bank loan to buy more equities.
-----Original Message----- ...the preponderance of research suggests that changes in margins are not an effective tool for reducing stock market volatility. It is possible that margin requirements inhibit very small investors whose access to other forms of credit is limited. If so, the only effect of raised margin requirements is to price out the very small investor without addressing the broader issue of stock price bubbles. If a change in margin requirements were taken by investors as a signal that the central bank would soon tighten monetary policy enough to burst a bubble, then there might be the appearance of a causal effect. But it is the prospect of monetary policy action, not the margin increase, that should be viewed as the trigger. In a similar manner, history tells us that "jawboning" asset markets will be ineffective unless backed by action. ___________________________________________________ Email Disclaimer This communication may contain confidential or privileged information and is for the attention of the named recipient only. It should not be passed on to any other person. Information relating to any company or security, is for information purposes only and should not be interpreted as a solicitation or offer to buy or sell any security. The information on which this communication is based has been obtained from sources we believe to be reliable, but we do not guarantee its accuracy or completeness. All expressions of opinion are subject to change without notice. All e-mail messages, and associated attachments, are subject to interception and monitoring for lawful business purposes. (c) 2002 Cazenove Service Company or affiliates. Cazenove & Co. Ltd and Cazenove Fund Management Limited provide independent advice and are regulated by the Financial Services Authority and members of the London Stock Exchange. Cazenove Fund Management Jersey is a branch of Cazenove Fund Management Limited and is regulated by the Jersey Financial Services Commission. Cazenove Investment Fund Management Limited, regulated by the Financial Services Authority and a member of IMA, promotes only its own products and services. ___________________________________________________
