Dynamic Leverage Asset Pricing

58 Pages Posted: 30 Aug 2016 Last revised: 2 Dec 2019

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 2016


We empirically investigate the predictions from alternative intermediary asset pricing theories. Exposure to broker-dealer book leverage commands a positive price of risk while high levels of broker-dealer leverage are associated with low future returns. In contrast, exposure to broker-dealer book equity relative to total wealth earns a negative price of risk and high broker-dealer equity predicts higher future returns. Measures of intermediary market equity yield opposite signs but are not robust to the inclusion of common risk factors. We conclude that there is strong support for models with leverage constraints as opposed to net worth constraints as the relevant friction.

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
+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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