Title:Leverage is a double-edged sword
Time:2021.5.20 19:30-21:00
Presenter:Prof. Yang Xuewei
Abstract:
We use proprietary futures brokerage data to study the impact of leverage on investors’ trading performance. We find that leverage is a double-edged sword.
For the bulk of investors, even though high leverage increases the risk (volatility) of their portfolio, it actually decreases performance. Specifically, a one unit increase in leverage reduces investment returns by 5.3 bps per day (13% annualized). Leveraged losses occur due to forced liquidation (margin calls) as well as additional trading costs due to enlarged leverage-induced positions. On the other hand, a few skilled investors do take advantage of leverage by actively timing the market and conducting arbitrage trades; these traders on average earn a 19.3 bps daily (47% annualized) return per additional unit of leverage.
Tencent Meeting:
ID:326 660 154
Pass Code:210520
