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The commercial bank leverage factor in U.S. asset prices

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  • Mihai, Marius M.

Abstract

I present novel results on a commercial bank leverage factor that drives U.S. asset prices. Portfolios which load negatively on this risk factor and are comprised of firms that are less resilient in credit expansions earn higher returns on average. In the time-series, a simple buy-and-hold strategy of the market index at medium- and long-horizons illustrates how investors can profit on the commercial bank loan cycle and earn higher returns and Sharpe ratios in recoveries and early stages of an expansion as opposed to credit booms.

Suggested Citation

  • Mihai, Marius M., 2022. "The commercial bank leverage factor in U.S. asset prices," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 156-171.
    • Handle: RePEc:eee:quaeco:v:86:y:2022:i:c:p:156-171
    DOI: 10.1016/j.qref.2022.07.004
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    More about this item

    Keywords

    Commercial bank leverage factor; Credit boom probability; Risk-premium; Sharpe ratio; Cross-section of returns;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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