Article

Intermediary Leverage Shocks and Funding Conditions

Jean-Sébastien Fontaine, René Garcia et Sermin Gungor

Résumé

The aggregate leverage of broker-dealers responds to demand and supply disturbances that have opposite effects on financial markets. Leverage supply shocks that relax broker-dealers' funding constraints raise leverage, improve liquidity, increase returns and carry a positive price of risk. Leverage demand shocks also raise leverage but worsen liquidity, reduce returns and carry a negative price of risk. Disentangling demand-and supply-like shocks resolves existing puzzles around the price of leverage risk and yields consistent evidence across many markets of a central role for intermediation frictions and dealers' aggregate leverage in asset pricing.

Mots-clés

Broker-dealers; Leverage; Asset pricing;

Codes JEL

  • H42: Publicly Provided Private Goods

Référence

Jean-Sébastien Fontaine, René Garcia et Sermin Gungor, « Intermediary Leverage Shocks and Funding Conditions », The Journal of Finance, 2025, à paraître.

Publié dans

The Journal of Finance, 2025, à paraître