Shadow banking and the cross-section of stock returns

Xin Wei, Xi Liu and Xueyong Zhang

Journal of International Financial Markets, Institutions and Money, 2022, vol. 81, issue C

Abstract: This study investigates the role of shadow banking in the cross-sectional pricing of individual stocks. Using stock exposure to the shadow banking loan volume, we show that stocks in the lowest shadow banking beta quintile generate 3.6% more annualized returns compared to stocks in the highest shadow banking beta quintile. The result is consistent with Merton’s ICAPM and suggests that investors are willing to pay high prices for stocks with positive shadow banking beta and they need extra compensation to hold stocks with negative shadow banking beta. Our results remain robust after controlling for firm characteristics and formal finance beta.

Keywords: Shadow banking; Cross-section of stock returns; ICAPM (search for similar items in EconPapers)
JEL-codes: G11 G12 G21 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:81:y:2022:i:c:s1042443122001172

DOI: 10.1016/j.intfin.2022.101645

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