Two of the hottest trends in private wealth are tax-aware long/short and borrowing via box spread.
Both have substantial pre- and post-tax perks, and both use margin.
That’s fine… when prudently managed.
This week, I’m taking the tax benefits of these products for granted and instead asking…
Is margin call risk a big deal?
Mentioned in this article…
NBER (Gary B. Gorton & Andrew Metrick): Securitized Banking and the Run on Repo
Basel Committee on Banking Supervision: Review of margining practices
Firstrade: Margin Loans (several worked examples)
AQR: Experience Matters: Addressing Five Common Criticisms of Tax Aware Long-Short (TA LS) Strategies
Underwriting margin call risk
What could go wrong?
Not all margin call risk is the same
Why should we care about margin calls?
What could cause a margin call? (6 rug-pulls)
Who’s in charge of the margin?