Pedro Saffi
Title of research: Deleveraging Risk
The project can be of value to practitioners for better understanding the risks associated with short-selling and the impact of the usage of leverage around times of funding illiquidity. In particular, when funding liquidity evaporates we find that securities with a greater presence of levered investors experience extreme return realizations as investors unwind their positions. Using unique data from equity lending markets as a proxy for the degree of leverage in a stock, we find large positive returns and reductions in short selling quantities following periods of funding illiquidity.