Читать книгу Competitive Advantage in Investing - Steven Abrahams - Страница 34

Finally, the market over time has run through a natural experiment that puts Frazzini and Pedersen's thinking to the test, thanks to the Federal Reserve. The Securities Exchange Act of 1934 gives the Fed the right under Regulation T to set a minimum amount of equity, or margin, and, consequently, the maximum amount of debt an individual can use to buy common stock on credit on a US exchange. From October 1934 to January 1974, the Fed changed the minimum margin requirement 22 times, allowing it to range from 40% of the market value of stock purchased to 100%. Each change in required margin shifted the limits on leverage across the entire US stock market. Each change put Frazzini and Pedersen to the test.

In Espoo, Finland, on the Baltic Sea, Petri Jylhä, a professor at the Aalto University School of Business, noticed the Fed's natural experiment as a way to test Frazzini and Pedersen. As the Fed's margin requirement moved higher, Jylhä recognized, the capital market line should get progressively flatter. If that happened, it would give further support to the case for betting-against-beta.

Jylhä started by showing that the Fed typically changed margin requirements in response to a surge or drop in credit, raising margin requirements after a steady rise in the amount of stock bought on credit and lowering margin requirements after a steady drop (Jylhä, 2018). After the Fed raised margin requirements, the amount of credit would fall over the next year by an average of 15%. And after the Fed lowered margin requirements, credit would rise over the next year by an average of 17%. Jylhä also found the Fed raised the margin after a steady run-up in stock prices and lowered the margin after a steady drop. Congress had given the Fed responsibility for managing leverage available to investors and smoothing the ups and downs in stocks, and the Fed was doing its job.

Jylhä then went on to see if a change in margin also changed important elements of the market or the economy, elements that might also change the performance of low or high beta stocks. Changes in margin had no impact on market returns, trading activity, inflation, the money supply, or industrial production. That lined up nicely with comments from Fed chairs and press reports about the time of policy changes that the market and economy took the changes in stride.

Finally, Jylhä turned to a direct test of Frazzini and Pedersen. Betting-against-beta would predict that rising margin would steadily raise the returns on low beta assets and lower the returns on high beta assets, flattening the capital markets line. Jylhä found a striking result. At high levels of required margin, expected returns from low to high beta not only ran flat, they actually fell. When the ability to borrow vanished, expected returns in high beta stocks fell well below the likely outcomes in low beta stocks. As Frazzini and Pedersen had predicted, CAPM had unraveled.