Intermediation Frictions in Equity Markets

65 Pages Posted: 6 May 2020 Last revised: 12 Jan 2021

Date Written: December 1, 2019


Stocks with similar characteristics but different levels of ownership by financial institutions have returns and risk premia that comove very differently with shocks to the risk-bearing capacity of financial intermediaries. After accounting for observable stock characteristics, excess returns on more intermediated stocks have higher betas on contemporaneous shocks to intermediary willingness to take risk and are more predictable by state variables that proxy for intermediary health. The empirical evidence supports the predictions of asset pricing models featuring financial intermediaries as marginal investors who face frictions that induce changes in their risk-bearing capacity. This suggests that such models are useful for explaining price movements not only in markets for complex financial assets, but also within asset classes where households face comparatively low barriers to direct participation.

Keywords: financial intermediaries, intermediary-based asset pricing, institutional investors

JEL Classification: G12, G23

Suggested Citation

Seegmiller, Bryan, Intermediation Frictions in Equity Markets (December 1, 2019). Available at SSRN: or

Bryan Seegmiller (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics