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Heterogeneous intermediary asset pricing

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  • Kargar, Mahyar

Abstract

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 the level of and variation in the risk premium. 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.

Suggested Citation

  • Kargar, Mahyar, 2021. "Heterogeneous intermediary asset pricing," Journal of Financial Economics, Elsevier, vol. 141(2), pages 505-532.
    • Handle: RePEc:eee:jfinec:v:141:y:2021:i:2:p:505-532
    DOI: 10.1016/j.jfineco.2021.04.012
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    More about this item

    Keywords

    Intermediary asset pricing; Heterogeneous intermediaries; Leverage; Financial frictions;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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