Leverage Asset Pricing

45 Pages Posted: 5 Sep 2013

See all articles by Tobias Adrian

Tobias Adrian

International Monetary Fund

Emanuel Moench

Deutsche Bundesbank; Goethe University Frankfurt - Department of Money and Macroeconomics

Hyun Song Shin

Bank for International Settlements (BIS)

Date Written: August 2013


We investigate intermediary asset pricing theories empirically and find strong support for models that have intermediary leverage as the relevant state variable. A parsimonious model that uses de-trended dealer leverage as a price-of-risk variable, and innovations to dealer leverage as a pricing factor, is shown to perform well in time series and cross-sectional tests of a wide variety of equity and bond portfolios. The model outperforms alternative specifications of intermediary pricing models that use intermediary net worth as a state variable, and it performs well in comparison to benchmark asset pricing models. We draw implications for macro-economic modeling.

Keywords: return predictability, cross-sectional asset pricing, financial intermediation, macro-finance

JEL Classification: G10, G12

Suggested Citation

Adrian, Tobias and Moench, Emanuel and Shin, Hyun Song, Leverage Asset Pricing (August 2013). FRB of New York Staff Report No. 625, Available at SSRN: https://ssrn.com/abstract=2321180 or http://dx.doi.org/10.2139/ssrn.2321180

Tobias Adrian (Contact Author)

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

HOME PAGE: http://www.tobiasadrian.com

Emanuel Moench

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
+49 69 95662312 (Phone)

HOME PAGE: http://https://www.bundesbank.de/en/emanuel-moench

Goethe University Frankfurt - Department of Money and Macroeconomics ( email )


Hyun Song Shin

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002

HOME PAGE: http://www.bis.org/author/hyun_song_shin.htm

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