Intermediary Asset Pricing: New Evidence from Many Asset Classes / Zhiguo He, Bryan Kelly, Asaf Manela.

By:

He, Zhiguo

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w21920.Publication details: Cambridge, Mass. National Bureau of Economic Research 2016.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: 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 crosssectional 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 pro-cyclical, implying counter-cyclical 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.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w21920 (Browse shelf(Opens below))	Not For Loan

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January 2016.

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 crosssectional 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 pro-cyclical, implying counter-cyclical 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.