IDEAS home Printed from https://ideas.repec.org/a/oup/rasset/v14y2024i1p1-39..html
   My bibliography  Save this article

Investor Demand for Leverage: Evidence from Equity Closed-End Funds

Author

Listed:
  • Robert Dam
  • Shaun William Davies
  • S Katie Moon

Abstract

We provide evidence that investors with leverage constraints demand leverage for the sake of leverage. We study the equity closed-end fund (CEF) market and document a strong positive relation between fund leverage and CEF premiums, indicating that investors pay a relative premium for leverage. We perform a quasi-natural experiment and identify leverage as a causal driver of the premium. Leverage changes do not signal improved fund performance. Instead, the only benefit to investors of increased leverage is amplified exposure via greater volatility and risk exposure. We supply external validity by relating our results to the betting-against-beta factor. (JEL G12, G14, G32)

Suggested Citation

  • Robert Dam & Shaun William Davies & S Katie Moon, 2024. "Investor Demand for Leverage: Evidence from Equity Closed-End Funds," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 14(1), pages 1-39.
  • Handle: RePEc:oup:rasset:v:14:y:2024:i:1:p:1-39.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/rapstu/raad012
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:rasset:v:14:y:2024:i:1:p:1-39.. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://academic.oup.com/raps .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.