Due to unplanned maintenance of the back-end systems supporting article purchase on Cambridge Core, we have taken the decision to temporarily suspend article purchase for the foreseeable future. We apologise for any inconvenience caused whilst we work with the relevant teams to restore this service.
Deleveraging risk is the risk attributable to investing in a security held by levered investors. When there is an aggregate negative shock to the availability of funding capital, securities with a greater presence of levered investors experience extreme return realizations as these investors unwind their positions. Using data on equity loans as a proxy for the degree of levered positions in a given stock, we find robust evidence of deleveraging risk. Stocks with a high degree of short selling experience large positive returns and a decrease in short selling around periods of funding capital scarcity.