Anticipating the Direct Effects of Credit Supply
57 Pages Posted: 15 May 2018 Last revised: 24 Feb 2021
Date Written: February 23, 2021
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: Suggested Citation