Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/93658
Authors: 
Adrian, Tobias
Moench, Emanuel
Shin, Hyun Song
Year of Publication: 
2013
Series/Report no.: 
Staff Report, Federal Reserve Bank of New York 625
Abstract: 
We investigate intermediary asset pricing theories empirically and find strong support for models that have intermediary leverage as the relevant state variable. A parsimonious model that uses detrended dealer leverage as a price-of-risk variable, and innovations to dealer leverage as a pricing factor, is shown to perform well in time series and cross-sectional tests of a wide variety of equity and bond portfolios. The model outperforms alternative specifications of intermediary pricing models that use intermediary net worth as a state variable, and it performs well in comparison to benchmark asset pricing models. We draw implications for macroeconomic modeling.
Subjects: 
return predictability
cross-sectional asset pricing
financial intermediation
macrofinance
JEL: 
G10
G12
Document Type: 
Working Paper

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