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Impact of Margin Requirement on Asset Pricing

Grant number: 12/18181-9
Support type:Scholarships in Brazil - Master
Effective date (Start): December 01, 2012
Effective date (End): February 28, 2014
Field of knowledge:Applied Social Sciences - Economics - Quantitative Methods Applied to Economics
Principal researcher:Bruno Cara Giovannetti
Grantee:Luiz Fernando Castelli
Home Institution: Faculdade de Economia, Administração e Contabilidade (FEA). Universidade de São Paulo (USP). São Paulo , SP, Brazil

Abstract

The 2008 financial crisis spurred a new literature in finance that seeks to identify if the margin requirement in times of illiquidity is a risk factor that requires an additional premium to the return of the asset. The studies are based on the operation called Margin Account, in which the broker makes a loan to the client, using as collateral the investor's portfolio. So each asset has a different margin and therefore different value as collateral. Thus, the margin is the ratio of equity that an investor must use in the acquisition of new assets.The international literature has found it difficult to estimate such impact, due to non-availability of public data by asset margin requirement. For Brazil, BM&F Bovespa disclose such data.Therefore, this project aims to use available data from BM&F Bovespa about the margin requirement for asset to capture if there is empirical evidence between this and the price of assets in the Brazilian market. Thus, it is expected to fill a gap in the literature on asset pricing to establish whether there is another risk factor to be priced, especially in times of shortage of capital.

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