Anticipating the Direct Effects of Credit Supply

57 Pages Posted: 15 May 2018 Last revised: 24 Feb 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: February 23, 2021

Abstract

Empirical studies of the direct effects of credit supply on asset prices often use difference-in-difference or event-study designs based on deregulatory events. The assumptions underlying such strategies are violated when there is anticipation by unconstrained buyers. We develop an information-revelation based model that allows us to estimate the direct effects of credit supply in the presence of anticipatory pre-trends using a simple linear dynamic panel approach. We apply the model to China's 2010-2015 stock margin lending reform, which precipitated a credit cycle and a stock market boom and bust. We estimate that margin lending increased the prices of treated stocks by 20%. More than 60% of this effect was already impounded in prices six months before the actual deregulation.

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 (February 23, 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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