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The Effect Of The Change In Call Loan Rates And Volatility On Stock Returns In 1929: An Empirical Study Into A Determinant Of The Great Depression, Amberish Chitre
The Effect Of The Change In Call Loan Rates And Volatility On Stock Returns In 1929: An Empirical Study Into A Determinant Of The Great Depression, Amberish Chitre
CMC Senior Theses
I investigate the effect of the change in call loan rates on stock returns during 1929. Call loan rates are the interest rates on borrowed funds to trade equity on a given exchange. It is estimated that 40% of stocks during this period were bought on margin. After a price decline comes a margin call, followed by a forced sales of securities, which leads to additional margin calls and future price declines. I regress daily excess returns on the change in daily call loan rates during 1929. In addition, I estimate volatility using an ARCH model and observe the previously …