Credit constraints and stock price volatility
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Author
Contributions
- Razin, Assaf. - Contributor
- Tong, Hui. - Contributor
- National Bureau of Economic Research. - Contributor
Publication
2007 - National Bureau of Economic Research, Cambridge, Mass, Massachusetts
Language
English
Word Count
7,500 words, Guess
Page Count
30 pages
Identifiers
- OCLC Control Number137305233
- Open LibraryOL17633853M
Description
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.
Subjects
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- Credit constraints and stock price volatility
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