Abstract

http://ssrn.com/abstract=1786061
 
 

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Financial Intermediaries and the Cross-Section of Asset Returns


Tobias Adrian


Federal Reserve Bank of New York

Erkko Etula


Goldman, Sachs & Co.; Independent

Tyler Muir


Yale University

March 14, 2011

Journal of Finance, Forthcoming
AFA 2012 Chicago Meetings Paper

Abstract:     
Financial intermediaries trade frequently in many markets using sophisticated models. Their marginal value of wealth should therefore provide a more informative stochastic discount factor (SDF) than that of a representative consumer. Guided by theory, we use shocks to the leverage of securities broker-dealers to construct an intermediary SDF. Intuitively, deteriorating funding conditions are associated with deleveraging and high marginal value of wealth. Our single-factor model prices size, book-to-market, momentum, and bond portfolios with an R2 of 77% and an average annual pricing error of 1% — performing as well as standard multi-factor benchmarks designed to price these assets.

Number of Pages in PDF File: 58

Keywords: cross sectional asset pricing, financial intermediation

JEL Classification: G1, G12, G21

Accepted Paper Series


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Date posted: March 23, 2011 ; Last revised: April 5, 2014

Suggested Citation

Adrian, Tobias and Etula, Erkko and Muir, Tyler, Financial Intermediaries and the Cross-Section of Asset Returns (March 14, 2011). Journal of Finance, Forthcoming; AFA 2012 Chicago Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1786061 or http://dx.doi.org/10.2139/ssrn.1786061

Contact Information

Tobias Adrian
Federal Reserve Bank of New York ( email )
33 Liberty Street
New York, NY 10045
United States
HOME PAGE: http://nyfedeconomists.org/adrian/
Erkko Etula
Goldman, Sachs & Co. ( email )
32 Old Slip
New York, NY 10005
United States
HOME PAGE: http://www.erkkoetula.com
Independent ( email )
No Address Available
Tyler Muir (Contact Author)
Yale University ( email )
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

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