Leverage

Tano Santos and Pietro Veronesi

No 22905, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Many stylized facts of leverage, trading, and asset prices obtain in a frictionless general equilibrium model that features agents’ heterogeneity in endowments and time- varying risk preferences. Our model predicts that aggregate debt increases in expansions when asset prices are high, volatility is low, and levered households enjoy a “consumption boom.” Our model is consistent with poorer households borrowing more and with intermediaries’ leverage being a priced factor. In crises, levered households strongly delever by “fire selling” their risky assets as asset prices drop. Yet, as empirically observed, their debt-to-wealth ratios increase as higher discount rates make their wealth decline faster.

JEL-codes: E21 E44 G12 (search for similar items in EconPapers)
Date: 2016-12
New Economics Papers: this item is included in nep-ban, nep-dge and nep-mac
Note: AP EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published as Tano Santos & Pietro Veronesi, 2021. "Leverage," Journal of Financial Economics, .

Downloads: (external link)
http://www.nber.org/papers/w22905.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:22905

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w22905

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().