Do Intermediaries Matter for Aggregate Asset Prices?

Valentin Haddad and Tyler Muir

No 28692, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Poor financial health of intermediaries coincides with low asset prices and high risk premiums. Is this because intermediaries matter for asset prices, or simply because their health correlates with economy-wide risk aversion? In the first case, return predictability should be more pronounced for asset classes in which households are less active. We provide evidence supporting this prediction, suggesting that a quantitatively sizable fraction of risk premium variation in several large asset classes such as credit or MBS is due to intermediaries. Movements in economy-wide risk aversion create the opposite pattern, and we find this channel also matters.

JEL-codes: G0 G01 G12 (search for similar items in EconPapers)
Date: 2021-04
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Published as VALENTIN HADDAD & TYLER MUIR, 2021. "Do Intermediaries Matter for Aggregate Asset Prices?," The Journal of Finance, vol 76(6), pages 2719-2761.

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