Anticipating the Direct Effects of Credit Supply

58 Pages Posted: 14 May 2018 Last revised: 7 Mar 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: May 2018

Abstract

Empirical studies of the direct effects of credit supply on asset prices often use difference-indifference 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.

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 (May 2018). NBER Working Paper No. w24586, Available at SSRN: https://ssrn.com/abstract=3177946

Christopher Hansman (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
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United Kingdom

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
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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