Leverage constraints and investors' choice of underlyings

Matthias Pelster

Journal of Banking & Finance, 2024, vol. 162, issue C

Abstract: This paper investigates the impact of a 2018 intervention by the European Securities and Markets Authority (ESMA), which limits the amount of leverage that retail investors can take on their trading activities. While the intervention successfully reduced leverage-usage, investors shifted their trading activities to riskier assets in the process, consistent with the idea that leverage-constrained investors substitute leverage with riskier securities. Thus, the intervention was not as effective as the reduction in leverage suggests.

Keywords: Trading behavior; Risk-taking; Contracts for difference; Regulatory intervention (search for similar items in EconPapers)
JEL-codes: G11 G40 G41 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:162:y:2024:i:c:s0378426624000700

DOI: 10.1016/j.jbankfin.2024.107150

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