Intermediaries and Asset Prices: Evidence from the U.S., U.K., and Japan, 1870-2016

95 Pages Posted: 14 Feb 2018 Last revised: 16 Jun 2018

See all articles by Matthew Baron

Matthew Baron

Cornell University - Samuel Curtis Johnson Graduate School of Management

Tyler Muir

University of California, Los Angeles (UCLA) - Anderson School of Management; National Bureau of Economic Research (NBER)

Date Written: June 1, 2018

Abstract

We study new international data on commercial banks and securities dealers from 1870-2016. Balance sheet expansion of intermediaries negatively predicts asset returns (stocks, bonds, currencies, housing) with high R2. This holds when controlling for macroeconomic predictors, is more concentrated at shorter horizons, and is stronger for intermediaries who participate more in a given security. We find robust predictability outside distress periods, in contrast to models featuring non-linearities during distress. Intermediaries in global financial centers predict asset returns internationally. Our results suggest a strong universal link between intermediaries and asset returns distinct from other macroeconomic channels. We highlight implications for theory.

Keywords: intermediary asset pricing, return predictability

JEL Classification: G12, G15, G21

Suggested Citation

Baron, Matthew and Muir, Tyler, Intermediaries and Asset Prices: Evidence from the U.S., U.K., and Japan, 1870-2016 (June 1, 2018). Available at SSRN: https://ssrn.com/abstract=3116417 or http://dx.doi.org/10.2139/ssrn.3116417

Matthew Baron (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

Tyler Muir

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

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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