The collateralizability premium

Arbeitspapier

A common prediction of macroeconomic models of credit market frictions is that the tightness of financial constraints is countercyclical. As a result, theory implies a negative collateralizability premium; that is, capital that can be used as collateral to relax financial constraints provides insurance against aggregate shocks and commands a lower risk compensation compared with non-collateralizable assets. We show that a longshort portfolio constructed using a novel measure of asset collateralizability generates an average excess return of around 8% per year. We develop a general equilibrium model with heterogeneous firms and financial constraints to quantitatively account for the collateralizability premium.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SAFE Working Paper ; No. 264

Classification and Topics

• Classification: Wirtschaft ; Asset Pricing; Trading Volume; Bond Interest Rates
• Subject: Cross-Section of Returns ; Financial Frictions ; Collateral Constraint

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Ai, Hengjie ; Li, Jun E. ; Li, Kai ; Schlag, Christian
• Event: Veröffentlichung
• (who): Goethe University Frankfurt, SAFE - Sustainable Architecture for Finance in Europe
• (where): Frankfurt a. M.
• (when): 2019

Further information

• DOI: doi:10.2139/ssrn.3474975
• Handle: http://hdl.handle.net/10419/205227
• URN: urn:nbn:de:hebis:30:3-514999
• Last update: 10.03.2025, 11:44 AM CET