Wealth and Risk from Leveraged Stock Portfolios

Authors

  • Dale L. Domian Department of Finance and Management Science, College of Commerce, University of Saskatchewan
  • Marie D. Racine Department of Finance and Management Science, College of Commerce, University of Saskatchewan

DOI:

https://doi.org/10.61190/fsr.v11i1.4720

Keywords:

Value at Risk, Leverage, Asset allocation

Abstract

A modest amount of leverage enhances the performance of stock portfolios in the long run. However, higher amounts of leverage produce dramatic declines in long-run wealth. Using probability distributions constructed from value-weighted stock index returns and a borrowing rate two percent- age points higher than Treasury bills, the maximum median ending wealth is achieved with an asset allocation of 170% stock. We use Value at Risk (VaR) to measure downside risk over a range of asset allocations and holding periods.

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Published

2002-03-31

How to Cite

Domian, D. L., & Racine, M. D. (2002). Wealth and Risk from Leveraged Stock Portfolios. Financial Services Review, 11(1), 33–46. https://doi.org/10.61190/fsr.v11i1.4720

Issue

Vol. 11 No. 1 (2002): FSR Spring 2002

Section

New Original Submission

License

Copyright (c) 2002 Academy of Financial Services

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