Intermediary Asset Pricing and the Financial Crisis

2018 ◽  
Vol 10 (1) ◽  
pp. 173-197 ◽  
Author(s):  
Zhiguo He ◽  
Arvind Krishnamurthy
Keyword(s):  
Asset Pricing ◽  
Financial Crisis ◽  
Empirical Evidence ◽  
Asset Prices ◽  
Financial Intermediation ◽  
Risk Premia

Intermediary asset pricing understands asset prices and risk premia through the lens of frictions in financial intermediation. Perhaps motivated by phenomena in the financial crisis, intermediary asset pricing has been one of the fastest-growing areas of research in finance. This article explains the theory behind intermediary asset pricing and, in particular, how it is different from other approaches to asset pricing. This article also covers selective empirical evidence in favor of intermediary asset pricing.

Long-Term Scarring from the Financial Crisis

2009 ◽  
Vol 210 ◽  
pp. 36-38 ◽  
Author(s):  
Ray Barrell
Keyword(s):  
Financial Crisis ◽  
Financial Crises ◽  
Asset Prices ◽  
Banking Sector ◽  
Oecd Countries ◽  
Risk Premia ◽  
Crisis Period ◽  
Permanent Effect ◽  
Output Costs

It is useful to look at the distinction between transitory and permanent effects of a crisis. Financial crises normally bring on a recession, and the output costs can be large, as Hoggarth and Saporta (2001) discuss. In the majority of cases since 1970 in the OECD countries output returns to its trend level and there is no permanent effect. However, there may have been a permanent scar on the level of output in Japan after its crisis in the early 1990s, making the crisis and subsequent recession much more costly. This may reflect the nature and length of the crisis, as the banking sector was left to flounder for some years before its rescue toward the end of the crisis period. This appears to have left a permanent scar because risk premia were subsequently higher, and real asset prices have not fully recovered.

scholarly journals Disasterization: A Simple Way to Fix the Asset Pricing Properties of Macroeconomic Models

2011 ◽  
Vol 101 (3) ◽  
pp. 406-409 ◽  
Author(s):  
Xavier Gabaix
Keyword(s):  
Asset Pricing ◽  
Business Cycle ◽  
Capital Stock ◽  
Asset Prices ◽  
Risk Premia ◽  
Macroeconomic Models ◽  
Macro Variables

A central difficulty in economics is to create a model with both good business cycle properties and asset pricing properties. I show how to solve this difficulty by a simple portable modeling device: the “disasterization” of models. Take an economy with good business cycle properties and create a new, “disasterized” economy, which is essentially identical to the original one except that disasters can destroy part of the capital stock and productivity. In such a disasterized economy, asset prices exhibit high and volatile risk premia, but macro variables remain unchanged. Perturbations of this benchmark allow for feedback from finance to macro.

Risk Aversion and the Labor Margin in Dynamic Equilibrium Models

2012 ◽  
Vol 102 (4) ◽  
pp. 1663-1691 ◽  
Author(s):  
Eric T Swanson
Keyword(s):  
Asset Pricing ◽  
Risk Aversion ◽  
Closed Form ◽  
Asset Prices ◽  
Dynamic Equilibrium ◽  
Risk Premia ◽  
Substantial Effect ◽  
Discount Factor ◽  
Stochastic Discount Factor ◽  
Equilibrium Models

The household's labor margin has a substantial effect on risk aversion, and hence asset prices, in dynamic equilibrium models even when utility is additively separable between consumption and labor. This paper derives simple, closed-form expressions for risk aversion that take into account the household's labor margin. Ignoring this margin can dramatically overstate the household's true aversion to risk. Risk premia on assets priced with the stochastic discount factor increase essentially linearly with risk aversion, so measuring risk aversion correctly is crucial for asset pricing in the model.

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