First, the amount of margin debt is small, having never amounted to more than about 1-3/4 percent of the market value of equity; moreover, even this figure overstates the amount of margin debt used to purchase stock, as such debt also finances short-sales of equity and transactions in non-equity securities.
Second, investors need not rely on margin debt to take a leveraged position in equities. They can borrow from other sources to buy stock. Or, they can purchase options, which will affect stock prices given the linkages across markets. Thus, not surprisingly, the preponderance of research suggests that changes in margins are not an effective tool for reducing stock market volatility.