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Views on non-Normal markets [27]

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Bullet points include: Leverage, also known as ‘gearing’, involves any investment approach in which we Start with X. In effect borrow some additional sum Y using some or all of X as ‘collateral’. And then invest (X+Y) rather than merely X. Above definition captures many mainstream activities, e.g. a public limited company typically issues both debt and equity. Servicing debt involves (typically) fixed costs. Residual upside (and downside) accrues to equityholders. All other things being equal, when profits good (bad), equity shareholders benefit (suffer), more so the greater the company is geared. Hence equity risk models may include ‘leverage’ factors

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