Macroprudential Buffers: Trading Systemic Risk for Risk Premia

45 Pages Posted: 15 Apr 2020

Date Written: December 16, 2019


I document that equity prices fall as macro-prudential buffers are announced. This is consistent with macro-prudential buffers leading to an increase in risk premia, from a heightened price of risk. Theoretically, I develop a model that predicts that as buffers are announced

1) The price of risk increases,

2) Systemic risk falls, and

3) Intermediaries' risky asset allocation decreases, as other agents with higher risk aversion increase their portfolio weights in the risky asset.

Empirically, I find evidence consistent with the first and third prediction. The second remains a testable implication of my model. In summary, this paper sheds light on the equilibrium effects of implementing new financial regulation on asset prices and systemic risk.

Keywords: Macroprudential Policy, Reserve Requirements, Systemic Risk, Financial Crisis

JEL Classification: G01, G21, G28, G12

Suggested Citation

Brøgger, Andreas Christian Svane, Macroprudential Buffers: Trading Systemic Risk for Risk Premia (December 16, 2019). Available at SSRN:

Andreas Christian Svane Brøgger (Contact Author)

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg, Frederiksberg 2000

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