Do equity covariances reflect financial leverage?
By: Peter Hecht
Contributors: Harvard Business School. Division of Research
Series: Working paper / Division of Research, Harvard Business School -- 03-045; Working paper (Harvard Business School. Division of Research) -- 03-045
Publisher: Division of Research, Harvard Business School
Published: 2003
Place of publication: Boston]
Language: eng
Number of pages: 27
Description: No arbitrage option pricing theory and the efficient market hypothesis predict that firms with higher financial leverage should have higher equity betas, all else equal. This paper finds little support in the data for this prediction. Within industry, there is large cross sectional variation in financial leverage. However, firms with high (low) financial leverage do not necessarily have high (low) equity beats. In fact, the relationship between equity beta and financial leverage.
Notes: "Draft date: August 1, 2002."

Chiefly tables.

Includes bibliographical references.