Do traders’ leverage constraints drive equity market liquidity? We use the unique features of the margin trading system in India to test the hypothesis that there is a causal relationship between traders’ leverage constraints (i.e., their ability to borrow to invest in risky assets) and a...

Does trader leverage drive equity market liquidity? We use the unique features of the margin trading system in India to identify a causal relationship between traders’ ability to borrow and a stock’s market liquidity. To quantify the impact of trader leverage, we employ a regression...

Does trader leverage exacerbate the liquidity comovement that we observe during crises? Using a regression discontinuity design, we exploit threshold rules governing margin eligibility in India to analyze the impact of trader leverage on systematic liquidity. We find that trader leverage causes...