Graduation Year


Date of Submission


Document Type

Open Access Senior Thesis

Degree Name

Bachelor of Arts



Reader 1

Eric Hughson

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2018 Amberish M Chitre


I investigate the effect of the change in call loan rates on stock returns during 1929. Call loan rates are the interest rates on borrowed funds to trade equity on a given exchange. It is estimated that 40% of stocks during this period were bought on margin. After a price decline comes a margin call, followed by a forced sales of securities, which leads to additional margin calls and future price declines. I regress daily excess returns on the change in daily call loan rates during 1929. In addition, I estimate volatility using an ARCH model and observe the previously understood negative relationship between volatility and stock prices. I find a statistically significant negative relationship between call loan rates and stock returns. Furthermore, I also find that changes in call loan rates are most influential on the manufacturing sector relative to the other 11 industries tested.

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