September 01, 1998

A recent Wall Street Journal article attributed the earlier 300-point stock market fall in part to "a global margin call" to investors in general. The article made an interesting case, saying the previous decline in stock prices had generated a margin call for investors who had come to expect a rising stock market and in an attempt to increase their returns began using leverage--buying financial instruments on margin. Once the market turned, the leverage kicked in, though in the opposite way most investors had hoped and magnified their losses. The argument continued, saying investors then had to deliver either by coming up with additional capital (out of savings, etc.), by maintaining their position, or by selling stocks to cover the margin call. To the extent they pursued the latter course, they were forced to sell and the selling pressure led to the 300-point decline in the market.

You must have an active account to view these reports. You may register for a trial here

Download Complete Report in PDF Format

Download Complete Report in Word Format