Following the crash of 1987, one contentious regulatory issue has been
whether margin activity exacerbated the decline in equity values. We
contrast the crash behavior of NASDAQ securities eligible for margin t
rading with the behavior of ineligible ones. Consistent with the hypot
hesis that margin-eligible securities were more frequently subjected t
o margin calls and forced sales, we find that abnormal volumes were un
iformly larger for eligible securities. However, there is no evidence
that this activity provoked additional price depreciation. Margin-elig
ible securities actually fell by one percent less than the ineligible
securities over the period.