Abstract

https://ssrn.com/abstract=1786061
 
 

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Financial Intermediaries and the Cross-Section of Asset Returns


Tobias Adrian


International Monetary Fund

Erkko Etula


Independent; New York University (NYU) - Leonard N. Stern School of Business

Tyler Muir


University of California, Los Angeles (UCLA) - Anderson School of Management

March 14, 2011

Journal of Finance, December 2014
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


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Date posted: March 23, 2011 ; Last revised: November 20, 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, December 2014; AFA 2012 Chicago Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1786061 or http://dx.doi.org/10.2139/ssrn.1786061

Contact Information

Tobias Adrian
International Monetary Fund ( email )
700 19th Street, N.W.
Washington, DC 20431
United States
HOME PAGE: http://www.tobiasadrian.com
Erkko Etula
Independent ( email )
No Address Available
New York University (NYU) - Leonard N. Stern School of Business ( email )
44 West 4th Street
New York, NY NY 10012
United States

Tyler Muir (Contact Author)
University of California, Los Angeles (UCLA) - Anderson School of Management ( email )
110 Westwood Plaza
Los Angeles, CA 90095-1481
United States
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