Collateralizability and Asset Prices: Evidence from Structured Funds

Gregory Phelan, Wei Li and Yongqin Wang
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Wei Li: University of International Business and Economics
Yongqin Wang: Fudan University

No 2025-102, Department of Economics Working Papers from Department of Economics, Williams College

Abstract: We test the asset-pricing implications of collateralizability using structured funds. The funds constitute a unique setting for allowing leveraged and unleveraged trading of the same set of assets, with continuous exogenous variations in leverage. Given the same fundamentals, we find that leveraged prices are higher than unleveraged prices. The difference is the collateral value, amounting to 6.4% of the leveraged price given an average leverage of 2.1. Furthermore, higher collateralizability leads to higher asset prices. Higher demand for leverage strengthens this impact and significantly contributes to collateral value. The findings provide causal evidence for collateral-based asset-pricing models.

JEL-codes: G12 (search for similar items in EconPapers)
Date: 2024-10-23
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