Margin Debt as a Stock Market Indicator

Does margin debt serve as an intermediate-term stock market sentiment indicator based on either momentum (with an increase/decrease in margin debt signaling a continuing stock market advance/decline) or reversion (with high/low margin debt signaling a pending reversal)? To investigate, we compare the behavior of NYSE end-of-month margin debt, published with a delay of over a month, with the monthly behavior of the the stock market (S&P 500 Index). Using end-of-month data for the period January 1959 through October 2010 (622 months), we find that: (more…)