Credit Constraints and Stock Price Volatility / Galina Hale, Assaf Razin, Hui Tong.

Format:

Book

Author/Creator:

Hale, Galina.

Contributor:

National Bureau of Economic Research.

Razin, Assaf.

Tong, Hui.

Series:

Working Paper Series (National Bureau of Economic Research) no. w13089.

NBER working paper series no. w13089

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2007.

Summary:

This paper addresses how creditor protection affects the volatility of stock market prices. Credit protection reduces the probability of oscillations between binding and non-binding states of the credit constraint; thereby lowering the rate of return variance. We test this prediction of a Tobin's q model, by using cross-country panel regression on stock price volatility in 40 countries over the period from 1984 to 2004. Estimated probabilities of a liquidity crisis are used as a proxy for the probability that credit constraints are binding. We find support for the hypothesis that institutions that help reduce the probability of oscillations between binding and non-binding states of the credit constraint also reduce asset price volatility.

Notes:

Print version record

May 2007.