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Do Intermediaries Matter for Aggregate Asset Prices?

Author

Listed:
  • Valentin Haddad
  • Tyler Muir

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.

Suggested Citation

  • Valentin Haddad & Tyler Muir, 2021. "Do Intermediaries Matter for Aggregate Asset Prices?," NBER Working Papers 28692, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:28692
    Note: AP CF EFG
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    Cited by:

    1. Kai Li & Chenjie Xu, 2023. "Asset pricing with a financial sector," Financial Management, Financial Management Association International, vol. 52(1), pages 67-95, March.
    2. Buffa, Andrea M. & Hodor, Idan, 2023. "Institutional investors, heterogeneous benchmarks and the comovement of asset prices," Journal of Financial Economics, Elsevier, vol. 147(2), pages 352-381.
    3. Hoek, Jasper & Kamin, Steve & Yoldas, Emre, 2022. "Are higher U.S. interest rates always bad news for emerging markets?," Journal of International Economics, Elsevier, vol. 137(C).
    4. Jason Allen & Milena Wittwer, 2023. "Intermediary Market Power and Capital Constraints," Staff Working Papers 23-51, Bank of Canada.
    5. Ricardo J Caballero & Alp Simsek, 2021. "A Model of Endogenous Risk Intolerance and LSAPs: Asset Prices and Aggregate Demand in a “COVID-19” Shock [Financial intermediaries and the cross-section of asset returns]," The Review of Financial Studies, Society for Financial Studies, vol. 34(11), pages 5522-5580.
    6. Andy C W Chui & Avanidhar Subrahmanyam & Sheridan Titman, 2022. "Momentum, Reversals, and Investor Clientele [Illiquidity and stock returns: Cross-section and time-series effects]," Review of Finance, European Finance Association, vol. 26(2), pages 217-255.
    7. Gruenthaler, Thomas & Lorenz, Friedrich & Meyerhof, Paul, 2022. "Option-based intermediary leverage," Journal of Banking & Finance, Elsevier, vol. 145(C).
    8. Chernov, Mikhail & Augustin, Patrick & Schmid, Lukas & Song, Dongho, 2020. "The term structure of CIP violations," CEPR Discussion Papers 14774, C.E.P.R. Discussion Papers.
    9. Isaenko, Sergey, 2023. "Trading strategies and the frequency of time-series," The Quarterly Review of Economics and Finance, Elsevier, vol. 90(C), pages 267-283.
    10. Elkamhi, Redouane & Jo, Chanik, 2023. "Asset holders’ consumption risk and tests of conditional CCAPM," Journal of Financial Economics, Elsevier, vol. 148(3), pages 220-244.
    11. Li, Zehao, 2022. "Financial intermediary leverage and monetary policy transmission," European Economic Review, Elsevier, vol. 144(C).
    12. Ana González-Urteaga & Belén Nieto & Gonzalo Rubio, 2022. "Spillover dynamics effects between risk-neutral equity and Treasury volatilities," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 13(4), pages 663-708, December.
    13. Carter Davis, 2023. "The Elasticity of Quantitative Investment," Papers 2303.14533, arXiv.org.
    14. Liu, Yang, 2023. "Government debt and risk premia," Journal of Monetary Economics, Elsevier, vol. 136(C), pages 18-34.
    15. Augustin, Patrick & Sokolovski, Valeri & Subrahmanyam, Marti G. & Tomio, Davide, 2022. "How sovereign is sovereign credit risk? Global prices, local quantities," Journal of Monetary Economics, Elsevier, vol. 131(C), pages 92-111.
    16. Kristy Jansen, 2023. "Long-term Investors, Demand Shifts, and Yields," Working Papers 769, DNB.

    More about this item

    JEL classification:

    • G0 - Financial Economics - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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