Riding the Credit Boom

56 Pages Posted: 15 May 2018 Last revised: 11 Aug 2019

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: August 9, 2019

Abstract

From 2010-2015, China liberalized margin lending, resulting in an unprecedented expansion of margin loans to financially constrained households. We implement a regression discontinuity design based on the ranking procedure used during the deregulation and estimate a large impact of this credit boom on asset prices. However, this direct effect---the focus of most academic and policy work---is only half the story. As theory predicts, we find that unconstrained speculators front-ran predictably marginable stocks, generating price-overshooting. Among mid-cap stocks favored by households, the direct effect accounts for 20% of their 2015 bubble, while front-running led households to pay 8.5% higher prices.

Keywords: Credit Supply, Credit Boom, Leverage, Bubbles, Margin Lending, Stock Market, Speculation

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, Riding the Credit Boom (August 9, 2019). 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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