Levati, M. Vittoria; Qiu, Jianying; Mahagaonkar, Prashanth - 2011
, participants well recognize changes in the systematic risk of equity associated with increasing leverage and, accordingly, demand … higher rate of return. Yet, this adjustment is not perfect: subjects underestimate the systematic risk of low …-leveraged equity whereas they overestimate the systematic risk of high-leveraged equity, resulting in a U-shaped cost of capital. A …