Homemade Leverage

AAA

DEFINITION of 'Homemade Leverage'

A substitution of risks that investors may undergo in order to move from overpriced shares in highly levered firms to those in unlevered firms by borrowing in personal accounts.

INVESTOPEDIA EXPLAINS 'Homemade Leverage'

Mainly attributed to the Modigliani-Miller Theorem, homemade leverage describes the situation where individuals borrowing on the exact same terms as large firms can duplicate corporate leverage through purchasing and financing options.

RELATED TERMS
  1. Leverage

    1. The use of various financial instruments or borrowed capital, ...
  2. Modigliani-Miller Theorem - M&M

    A financial theory stating that the market value of a firm is ...
  3. Leverage Ratio

    1. Any ratio used to calculate the financial leverage of a company ...
  4. Multibank Holding Company

    A company that owns or controls two or more banks. Mutlibank ...
  5. Short Put

    A type of strategy regarding a put option, which is a contract ...
  6. Wingspread

    To maximize potential returns for certain levels of risk (while ...
Related Articles
  1. Will Corporate Debt Drag Your Stock ...
    Investing Basics

    Will Corporate Debt Drag Your Stock ...

  2. Leveraged Investment Showdown
    Options & Futures

    Leveraged Investment Showdown

  3. Forex Leverage: A Double-Edged Sword
    Forex Education

    Forex Leverage: A Double-Edged Sword

  4. Day Trading Strategies For Beginners
    Trading Strategies

    Day Trading Strategies For Beginners

comments powered by Disqus
Hot Definitions
  1. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  2. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  5. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center