The leverage which an individual investor can obtain by borrowing and lending on the same terms as firms. To do so, a rational investor will borrow on personal account and use the money to buy shares in unlevered firms (firms that don’t use debt to finance their capital). More specifically, investors can replicate managers’ capital structure decisions particularly in cases levered firms are overprices or prices too high, where borrowing to buy their shares would create the effect of corporate leverage but at individual level.
It is also sometimes known as homemade leverage.
Comments