Time: 1.00 - 2.00pm Venue: Room 3.21, Old Building, LSE (map)
Speaker: Matthew Baron (Cornell University)
Seminar Title: Intermediaries and Asset Prices: Evidence from the U.S., U.K., and Japan, 1870-2016
Abstract: We study new international data on commercial banks and securities dealers from 1870-2016. Balance sheet expansion of intermediaries negatively predicts asset returns (stocks, bonds, currencies, housing) with high R2. This holds when controlling for macroeconomic predictors, is more concentrated at shorter horizons, and is stronger for intermediaries who participate more in a given security. We find robust predictability outside distress periods, in contrast to models featuring non-linearities during distress. Intermediaries in global financial centers predict asset returns internationally. Our results suggest a strong universal link between intermediaries and asset returns distinct from other macroeconomic channels. We highlight implications for theory.
