Intermediary asset pricing: New evidence from many asset classes
Zhiguo He (),
Bryan Kelly and
Journal of Financial Economics, 2017, vol. 126, issue 1, 1-35
We find that shocks to the equity capital ratio of financial intermediaries—Primary Dealer counterparties of the New York Federal Reserve—possess significant explanatory power for cross-sectional variation in expected returns. This is true not only for commonly studied equity and government bond market portfolios, but also for other more sophisticated asset classes such as corporate and sovereign bonds, derivatives, commodities, and currencies. Our intermediary capital risk factor is strongly procyclical, implying countercyclical intermediary leverage. The price of risk for intermediary capital shocks is consistently positive and of similar magnitude when estimated separately for individual asset classes, suggesting that financial intermediaries are marginal investors in many markets and hence key to understanding asset prices.
Keywords: Sophisticated asset classes; Primary dealers; Intermediary capital; Leverage cycles (search for similar items in EconPapers)
JEL-codes: G12 G20 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
Working Paper: Intermediary Asset Pricing: New Evidence from Many Asset Classes (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:126:y:2017:i:1:p:1-35
Access Statistics for this article
Journal of Financial Economics is currently edited by G. William Schwert
More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().