Financial Intermediation, Asset Prices, and Macroeconomic Dynamics

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Staff Reports

Financial Intermediation, Asset Prices, and Macroeconomic Dynamics

January 2010 Number 422
Revised September 2010

JEL classification: G10, G12

Authors: Tobias Adrian, Emanuel Moench, and Hyun Song Shin

We document that financial intermediary balance sheet aggregates contain strong predictive power for excess returns on a broad set of equity, corporate, and Treasury bond portfolios. Our results provide support to the hypothesis that financial intermediary balance sheet quantities matter in the determination of risk premia. We also explore the extent to which the intermediary variables that predict excess returns impact real economic activity. Our findings point to the importance of financing frictions in macroeconomic dynamics and asset pricing.

Available only in PDF PDF

58 pages / 362 kb

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