The role of European financial intermediaries in asset pricing

Abstract

The field of asset pricing has experienced new developments that have questioned the validity of early asset pricing models based on the marginal investor’s perspective. Recently, the literature has been focusing on investment-based asset pricing models, using proxies for the marginal value of wealth of the financial intermediary as Stochastic Discount Factor. I empirically tested a single-factor model based on the leverage of European financial intermediaries on a cross-section of European portfolios, finding a positive and significant price of risk and a good performance in terms of R^2, although not as good as the standard asset pricing models, used as benchmarks.