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The Limits of Leverage

Paolo Guasoni

出版	SSRN, 2016
URL	http://books.google.com.hk/books?id=uREBzwEACAAJ&hl=&source=gbs_api

註釋

When trading incurs proportional costs, leverage can scale an asset's return only up to a maximum multiple, which is sensitive to its volatility and liquidity. In a model with one safe and one risky asset, with constant investment opportunities and proportional costs, we find strategies that maximize long term return given average volatility. As leverage increases, rising rebalancing costs imply declining Sharpe ratios. Beyond a critical level, even returns decline. Holding the Sharpe ratio constant, higher asset volatility leads to superior returns through lower costs.