Heterogeneous Intermediary Asset Pricing
93 Pages Posted: 27 Nov 2018 Last revised: 23 Sep 2019
Date Written: November 23, 2018
I show that the composition of the financial sector has important asset pricing implications beyond the health of the aggregate financial sector. To assess the impact of massive balance sheet adjustments within the intermediary sector during the Great Recession and resolve conflicting asset pricing evidence, I propose a dynamic asset pricing model with heterogeneous intermediaries facing financial frictions. Asset flows between intermediaries are quantitatively important for both level and variation of risk premia. An empirical measure of the composition of the intermediary sector negatively forecasts future excess returns and is priced in the cross-section with a positive price of risk.
Keywords: Heterogeneous Intermediaries, Intermediary Asset Pricing, Leverage Cyclicality
JEL Classification: G12, G11, G21
Suggested Citation: Suggested Citation