# Leverage theory, more rarely also leverage hypothesis

- Canonical URL: https://www.gerhardmerk.de/leverage-theory-more-rarely-also-leverage-hypothesis
- Post ID: 593035
- Modified: 2023-07-25T21:01:15+00:00
- Language: en

## Definition

Attempt to explain the empirically ascertainable fact that - an increase in volatility on the stock market is accompanied by a fall in share prices, and that - share prices rise when volatility falls. - The rationale is seen in the fact that when the value of a company declines, the percentage of equity falls and thus leverage increases. This in turn results in many investors dumping the relevant shares; volatility increases. The increase in volatility will cause banks to adjust their lending conditions, i.e. to raise the interest rate for further loans. - Of course, other reasons, such as a general or industry-specific turnaround in expectations, can also be the cause of the interaction described above. - See Stock market volatility, Valuability, Deleveraging, Domino effect, Financial market stress, Sentiment, Price/cash flow ratio, Margin coverage, Sharpe ratio, Variance, Volatility. Attention: The financial encyclopedia is protected by copyright and may only be used for private purposes without express consent! University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec. Professor Dr. Eckehard Krah, Dipl.rer.pol. E-mail address: info@ekrah.com https://de.wikipedia.org/wiki/Gerhard_Ernst_Merk https://www.jung-stilling-gesellschaft.de/merk/ https://www.gerhardmerk.de/

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