Investor attention and the use of leverage

Denis Davydov, Jarkko Peltomäki*

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

2 Citations (Scopus)

Abstract

We investigate the effects of using different sources of investment leverage, that is, securities with embedded leverage and traditional margin accounts, on the portfolio performance of retail investors, recognizing that these effects may be conditional on investor attention. We find that investors who trade on margin underperform those who do not have margin accounts; we also find that investors trading securities with embedded leverage show even poorer performance than investors trading on margin. The negative effect of leverage usage, however, decreases with greater investor attention, measured by portfolio monitoring frequency. Results suggest that more attentive investors gain more from using investment leverage.
Original languageEnglish
Peer-reviewed scientific journalThe Financial Review
Volume58
Issue number2
Pages (from-to)287-313
Number of pages27
ISSN0732-8516
DOIs
Publication statusPublished - 13.02.2023
MoE publication typeA1 Journal article - refereed

Keywords

  • 511 Economics
  • investor attention
  • investment leverage
  • margin trading
  • embedded leverage
  • portfolio performance

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