Dynamic Leverage Asset Pricing

Tobias Adrian, , and Hyun Song Shin
Authors registered in the RePEc Author Service: Emanuel Moench

No 11466, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We empirically investigate the predictions from alternative intermediary asset pricing theories. Exposure to broker-dealer book leverage commands a positive price of risk while high levels of broker-dealer leverage are associated with low future returns. In contrast, exposure to broker-dealer book equity relative to total wealth earns a negative price of risk and high broker-dealer equity predicts higher future returns. Measures of intermediary market equity yield opposite signs but are not robust to the inclusion of common risk factors. We conclude that there is strong support for models with leverage constraints as opposed to net worth constraints as the relevant friction.

Keywords: Leverage cycles; Intermediary asset pricing; Macro-finance (search for similar items in EconPapers)
JEL-codes: G10 G12 (search for similar items in EconPapers)
Date: 2016-08
New Economics Papers: this item is included in nep-fmk and nep-ifn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Working Paper: Dynamic Leverage Asset Pricing (2013)
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