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Journal Articles Journal of Corporate Finance Year : 2004

Margin regulation and market quality: a microstructure analysis

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Gordon J. Alexander
  • Function : Author
Mark A. Peterson
  • Function : Author
Paul J. Seguin
  • Function : Author

Abstract

We find that trading volume increases and market liquidity remains unchanged, while the adverse selection and order-processing cost components of the spread increase and decrease, respectively, after margin levels decline when stocks become margin-eligible. This evidence indicates that the information content of trades has increased, thereby improving market quality. However, no changes were detected after the 1997 regulatory reforms. These results have implications across a broad swath of corporate finance dimensions, including the (1) cost of capital, (2) public vs. private financing decision, (3) form of managerial compensation, (4) type of ownership structure, and (5) degree of shareholder monitoring.

Dates and versions

hal-00460981 , version 1 (03-03-2010)

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Evren Ors, Gordon J. Alexander, Mark A. Peterson, Paul J. Seguin. Margin regulation and market quality: a microstructure analysis. Journal of Corporate Finance, 2004, Vol.10,n°4, pp.549-574. ⟨10.1016/S0929-1199(02)00048-2⟩. ⟨hal-00460981⟩

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