Deleveraging Risk

48 Pages Posted: 27 Nov 2012 Last revised: 26 Aug 2016

See all articles by Scott A. Richardson

Scott A. Richardson

London Business School; Acadian Asset Management

Pedro Saffi

University of Cambridge - Judge Business School

Kari Sigurdsson

Schroders Investment Management

Date Written: August 26, 2016


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.

Keywords: Deleveraging, equity lending, short selling, arbitrage capital, funding capital

JEL Classification: G12, G14, G15

Suggested Citation

Richardson, Scott Anthony and Saffi, Pedro A. C. and Sigurdsson, Kari, Deleveraging Risk (August 26, 2016). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming, Available at SSRN: or

Scott Anthony Richardson (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Acadian Asset Management ( email )

260 Franklin Street
Boston, MA 02110
United States

Pedro A. C. Saffi

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom


Kari Sigurdsson

Schroders Investment Management ( email )

31 Gresham Street
London, EC2V 7QA
United Kingdom

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