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The leverage effect without leverage


  • Hens, Thorsten
  • Steude, Sven C.


We use experimental stock markets to add more evidence that Black's [1976. Proceedings of the 1976 Meeting of the Business and Economic Statistics Section. American Statistical Association, pp. 177-181] leverage effect in financial markets does not necessarily stem from the financial leverage of the firm. We surprisingly find a large number of markets in which the leverage effect is observed although the underlying asset does not exhibit any financial leverage at all.

Suggested Citation

  • Hens, Thorsten & Steude, Sven C., 2009. "The leverage effect without leverage," Finance Research Letters, Elsevier, vol. 6(2), pages 83-94, June.
  • Handle: RePEc:eee:finlet:v:6:y:2009:i:2:p:83-94

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    References listed on IDEAS

    1. Christie, Andrew A., 1982. "The stochastic behavior of common stock variances : Value, leverage and interest rate effects," Journal of Financial Economics, Elsevier, vol. 10(4), pages 407-432, December.
    2. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    3. Ang, Andrew & Chen, Joseph, 2002. "Asymmetric correlations of equity portfolios," Journal of Financial Economics, Elsevier, vol. 63(3), pages 443-494, March.
    4. R. Cont, 2001. "Empirical properties of asset returns: stylized facts and statistical issues," Quantitative Finance, Taylor & Francis Journals, vol. 1(2), pages 223-236.
    5. Granger, Clive W.J., 2005. "The past and future of empirical finance: some personal comments," Journal of Econometrics, Elsevier, vol. 129(1-2), pages 35-40.
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    Cited by:

    1. Antoine Lejay & Paolo Pigato, 2017. "A threshold model for local volatility: evidence of leverage and mean reversion effects on historical data," Working Papers hal-01669082, HAL.
    2. Giovanni Giusti & Janet Hua Jiang & Yiping Xu, 2014. "Interest on Cash, Fundamental Value Process and Bubble Formation on Experimental Asset Markets," Staff Working Papers 14-18, Bank of Canada.
    3. Muhammad Sajid & Amir Mahmood & Hazoor Muhammad Sabir, 2016. "Does Financial Leverage Influence Investment Decisions? Empirical Evidence From KSE-30 Index of Pakistan," Asian Journal of Economic Modelling, Asian Economic and Social Society, vol. 4(2), pages 82-89, June.
    4. Antoine Lejay & Paolo Pigato, 2017. "A threshold model for local volatility: evidence of leverage and mean reversion effects on historical data," Papers 1712.08329,, revised Jan 2018.
    5. Haas, Markus & Krause, Jochen & Paolella, Marc S. & Steude, Sven C., 2013. "Time-varying mixture GARCH models and asymmetric volatility," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 602-623.
    6. repec:eee:jbfina:v:82:y:2017:i:c:p:180-190 is not listed on IDEAS
    7. Agata Kliber, 2016. "The leverage effect puzzle: the case of European sovereign credit default swap market," Review of Derivatives Research, Springer, vol. 19(3), pages 217-235, October.


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