Do Intermediaries Matter for Aggregate Asset Prices?

79 Pages Posted: 19 Apr 2021 Last revised: 26 May 2021

See all articles by Valentin Haddad

Valentin Haddad

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

Tyler Muir

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

Date Written: April 2021

Abstract

Poor financial health of intermediaries coincides with low asset prices and high risk premiums. Is this because intermediaries matter for asset prices, or simply because their health correlates with economy-wide risk aversion? In the first case, return predictability should be more pronounced for asset classes in which households are less active. We provide evidence supporting this prediction, suggesting that a quantitatively sizable fraction of risk premium variation in several large asset classes such as credit or MBS is due to intermediaries. Movements in economy-wide risk aversion create the opposite pattern, and we find this channel also matters.

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Suggested Citation

Haddad, Valentin and Muir, Tyler, Do Intermediaries Matter for Aggregate Asset Prices? (April 2021). NBER Working Paper No. w28692, Available at SSRN: https://ssrn.com/abstract=3829390

Valentin Haddad (Contact Author)

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

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National Bureau of Economic Research (NBER) ( email )

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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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