Deleveraging Risk

Scott A. Richardson, Pedro A. C. Saffi, Kari Sigurdsson
2012 Social Science Research Network  
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 levered
more » ... s experience large positive returns and a decrease in short selling activity around periods of funding capital scarcity. JEL classification: G12; G14; G15
doi:10.2139/ssrn.2180785 fatcat:iumof4vbcnhjhoc6kmo63qni6a