Prof. Matthias Pelster (Universität Duisburg Essen)
Datum: May 17th, 2023
Zeit: 12:00 - 01:30 pm
Ort: Room 314, Schackstr. 4/III
Titel: Leverage constraints and investors’ choice of underlyings
Abstract: This paper investigates the impact of a 2018 intervention by the European Securities and Markets Authority (ESMA) limiting the amount of leverage that 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-constraint investors substitute leverage with riskier securities. Thus, the intervention was not as effective as the reduction in leverage suggests. Consistent with the notion that risky investment strategies spread through the population, I find some evidence of a spillover effect to investors who are not affected by the regulatory intervention.