Deleveraging risk

Richardson, S A and Saffi, P A C and Sigurdsson, K (2017) Deleveraging risk. Journal of Financial and Quantitative Analysis (JFQA), 52 (6). pp. 2491-2522. ISSN 0022-1090

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Abstract

Deleveraging risk is the risk attributable to investing in a security held by levered investors. When there is an aggregate negative shock to the availability of funding capital, securities with a greater presence of levered investors experience extreme return realizations as these investors unwind their positions. Using data on equity loans as a proxy for the degree of levered positions in a given stock, we find robust evidence of deleveraging risk. Stocks with a high degree of short selling experience large positive returns and a decrease in short selling around periods of funding capital scarcity.

Item Type: Article
Additional Information: This article has been published in a revised form in Journal of Financial and Quantitative Analysis [http://doi.org/10.1017/S0022109017001077]. This version is free to view and download for private research and study only. Not for re-distribution, re-sale or use in derivative works. © 2017 Michael G. Foster School of Business, University of Washington
Subjects: E > Equity capital
F > Financial risk
Subject Areas: Economics
DOI: 10.1017/S0022109017001077
Date Deposited: 01 Nov 2016 17:58
Last Modified: 02 Jan 2018 12:27
URI: http://lbsresearch.london.edu/id/eprint/566

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