TY  - JOUR
AU  - Hale,Galina
AU  - Razin,Assaf
AU  - Tong,Hui
TI  - Credit Constraints and Stock Price Volatility
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13089
PY  - 2007
Y2  - May 2007
UR  - http://www.nber.org/papers/w13089
L1  - http://www.nber.org/papers/w13089.pdf
N1  - Author contact info:
Galina Hale
Economic Research
Federal Reserve Bank of San Francisco
101 Market St., MS 1130
San Francisco, CA 94105
Tel: 415-974-3131
Fax: 415-974-2168
E-Mail: Galina.B.Hale@sf.frb.org

Assaf Razin
Department of Economics
Cornell University
Uris 422
Ithaca, NY 14853
Tel: 607/255-9625
Fax: 607/255-2818
E-Mail: ar256@cornell.edu

Hui Tong
Research Department
IMF Washington DC
700 19th Street N.W.
Washington, DC 20431
E-Mail: htong@imf.org
AB  - This paper addresses how creditor protection affects the volatility of stock market prices. Credit protection reduces the probability of oscillations between binding and non-binding states of the credit constraint; thereby lowering the rate of return variance. We test this prediction of a Tobin's q model, by using cross-country panel regression on stock price volatility in 40 countries over the period from 1984 to 2004. Estimated probabilities of a liquidity crisis are used as a proxy for the probability that credit constraints are binding. We find support for the hypothesis that institutions that help reduce the probability of oscillations between binding and non-binding states of the credit constraint also reduce asset price volatility.
ER  -