Riding the Credit Boom

45 Pages Posted: 14 May 2018

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: May 2018

Abstract

Research on leverage and asset-price fluctuations focuses on the direct effect of lax bank lending enabling financially-constrained investors to take excessive risks. Ignored are unconstrained investors speculating on higher prices during credit booms. To identify these two effects, we utilize China's staggered liberalization of stock-margin lending from 2010-2015—which encouraged a bank/brokerage-credit-fueled stock-market bubble. The direct effect is a 25 cent increase in a stock's market capitalization for each dollar of margin debt. Unconstrained investors led to an even larger increase in valuations of an additional 32 cents as they speculated on stocks likely to qualify for lending.

Suggested Citation

Hansman, Christopher and Hong, Harrison G. and Jiang, Wenxi and Liu, Yu-Jane and Meng, Juanjuan, Riding the Credit Boom (May 2018). NBER Working Paper No. w24586. Available at SSRN: https://ssrn.com/abstract=3177946

Christopher Hansman (Contact Author)

Imperial College Business School ( email )

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HOME PAGE: http://chrishansman.com/

Harrison G. Hong

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)

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Cambridge, MA 02138
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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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