Dynamic Leverage Asset Pricing

49 Pages Posted: 30 Aug 2016

See all articles by Tobias Adrian

Tobias Adrian

International Monetary Fund

Emanuel Moench

Deutsche Bundesbank

Hyun Song Shin

Bank for International Settlements (BIS)

Date Written: August 2016

Abstract

We empirically investigate predictions from alternative intermediary asset pricing theories. The theories distinguish themselves in their use of intermediary equity or leverage as pricing factors or forecasting variables. We find strong support for a parsimonious dynamic pricing model based on broker-dealer leverage as the return forecasting variable and shocks to broker-dealer leverage as a cross-sectional pricing factor. The model performs well in comparison to other intermediary asset pricing models as well as benchmark pricing models in linear and nonlinear specifications. We find little empirical support for pricing models using intermediary equity as state variable.

Keywords: intermediary asset pricing, Leverage Cycles, Macro-Finance

JEL Classification: G10, G12

Suggested Citation

Adrian, Tobias and Moench, Emanuel and Shin, Hyun Song, Dynamic Leverage Asset Pricing (August 2016). CEPR Discussion Paper No. DP11466. Available at SSRN: https://ssrn.com/abstract=2831970

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
Germany
+49 69 95662312 (Phone)

Hyun Song Shin

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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

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