How does increased stock margin debt lead to higher stock prices?

Answer 1

The amount of margin debt being used to purchase stocks on the NYSE is ... money; Japan's Nikkei is up 35% this year, 50% more than the S & P 500, ... Consulting some of the most astute bubble analysts led us to a brillian.

Answer 2

Margin debt is money lent to stock investors secured by stock already owned. The borrowed margin money can then be used to purchase additional stock. There is a general long term correlation between rising stock prices and rising margin debt. The correlation is not perfect however since margin debt can be used by the borrower to purchase assets other than stock such as bonds or for selling stock short. In addition, studies have shown that increased margin debt often follows higher stock prices since investors tend to purchase stock in a rising market and will borrow money to do so. Rising margin debt therefore may not directly cause an increase in stock prices but may enhance a bull market in stocks that is already in place. Different studies have shown that changing margin requirements do not result in a long lasting impact on stock prices.