Anticipating the Direct Effects of Credit Supply

55 Pages Posted: 15 May 2018 Last revised: 19 Nov 2021

See all articles by Christopher Hansman

Christopher Hansman

Imperial College Business School

Harrison G. Hong

Columbia University, Graduate School of Arts and Sciences, Department of Economics; National Bureau of Economic Research (NBER)

Wenxi Jiang

CUHK Business School, The Chinese University of Hong Kong

Yu-Jane Liu

Peking University - Guanghua School of Management

Juanjuan Meng

Peking University - Guanghua School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: November 18, 2021

Abstract

We quantify how margin-lending liberalization shaped the boom and bust of the Chinese stock market from 2010-2015. In contrast to earlier efforts on how credit supply elevates asset valuations, we model not just the ex-post price effects of credit expansions but also anticipatory price effects due to buying by unconstrained investors. Using the staggered deregulation of margin lending across firms, we first present reduced-form evidence that the direct effect of lending qualification is anticipated. We then develop an information-revelation based model of rational anticipation that allows us to consistently estimate the size of anticipatory and direct effects using a linear dynamic panel approach. We use our model to conduct counterfactuals related to the timing of the government's decision to pause margin-lending liberalization due to financial-stability concerns.

Keywords: Credit Supply, Credit Boom, Margin Lending, Stock Market, Anticipation

JEL Classification: E44, E51, G00, G01, G02

Suggested Citation

Hansman, Christopher and Hong, Harrison G. and Jiang, Wenxi and Liu, Yu-Jane and Meng, Juanjuan, Anticipating the Direct Effects of Credit Supply (November 18, 2021). Available at SSRN: https://ssrn.com/abstract=3171873 or http://dx.doi.org/10.2139/ssrn.3171873

Christopher Hansman

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

HOME PAGE: http://chrishansman.com/

Harrison G. Hong (Contact Author)

Columbia University, Graduate School of Arts and Sciences, Department of Economics ( email )

420 W. 118th Street
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Wenxi Jiang

CUHK Business School, The Chinese University of Hong Kong ( email )

Room 1250, Cheng Yu Tung Building
Chinese University of Hong Kong
Shatin, NT 06520
Hong Kong

Yu-Jane Liu

Peking University - Guanghua School of Management ( email )

Beijing
China

Juanjuan Meng

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

HOME PAGE: http://www.gsm.pku.edu.cn/faculty_and_research/en/en_teacherDetail.html?crmurl=http://crm.gsm.pku.ed

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