NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Yu-Jane Liu

Guanghua School of Management
Peking University
Beijing 100871, China

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Institutional Affiliation: Peking University

NBER Working Papers and Publications

May 2018Riding the Credit Boom
with Christopher Hansman, Harrison Hong, Wenxi Jiang, Juan-Juan Meng: w24586
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.
 
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