Procyclical leverage in Europe and its role in asset pricing

Markus Baltzer, Alexandra Koehl and Stefan Reitz

Journal of International Money and Finance, 2020, vol. 107, issue C

Abstract: Since the global financial crisis a growing literature stresses that financial intermediaries balance sheet management may reinforce financial market shocks with severe consequences for the real sector of the economy. In this paper we provide empirical evidence for this view from European and German asset markets. GMM estimations as well as dynamic asset pricing models reveal that broker–dealer leverage is procyclical with a positive price of risk and also forecasts future asset returns. Overall, our results provide evidence in favor of the importance of broker-dealers as marginal investors in asset markets.

Keywords: Broker–dealer leverage; Intermediary asset pricing; Dynamic asset pricing (search for similar items in EconPapers)
JEL-codes: G10 G12 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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Working Paper: Procyclical leverage in Europe and its role in asset pricing (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:107:y:2020:i:c:s0261560620301765

DOI: 10.1016/j.jimonfin.2020.102220

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