DP11466 Dynamic Leverage Asset Pricing
|Author(s):||Tobias Adrian, Emanuel Moench, Hyun Song Shin|
|Publication Date:||August 2016|
|Keyword(s):||intermediary asset pricing, Leverage Cycles, Macro-Finance|
|Programme Areas:||Financial Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=11466|
We empirically investigate predictions from alternative intermediary asset pricing theories. The theories distinguish themselves in their use of intermediary equity or leverage as pricing factors or forecasting variables. We find strong support for a parsimonious dynamic pricing model based on broker-dealer leverage as the return forecasting variable and shocks to broker-dealer leverage as a cross-sectional pricing factor. The model performs well in comparison to other intermediary asset pricing models as well as benchmark pricing models in linear and nonlinear specifications. We find little empirical support for pricing models using intermediary equity as state variable.