Should Leverage (Margin) Be Used to Take Advantage of the Equity Risk Premium?

By on May 6, 2010

Abnormal Returns looks at this issue from the point of view of various financial bloggers including David Merkel at Aleph Blog and Tyler Cowen at Marginal Revolution. The answer is that it depends if equities continue to exhibit their historical risk premium versus less volatile investments.

The risk of a complete meltdown is probably too high to employ leverage to any significant degree. The experience of Japan provides an object lesson of a market that has crashed and never recovered.

Source: Abnormal Returns

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>