This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. ASSA Annual Meeting
  3. 2024
  4. Program
  5. Financial Intermediation: General
« Back to Results

Financial Intermediation: General

Paper Session

Friday, Jan. 5, 2024 10:15 AM - 12:15 PM (CST)

Marriott Rivercenter, Grand Ballroom Salon C
Hosted By: American Finance Association
  • Chair: Valentin Haddad, University of California-Los Angeles

Is Asset Demand Elasticity Set at the Household or Intermediary Level?

Ehsan Azarmsa
,
University of Illinois-Chicago
Carter Davis
,
Indiana University

Abstract

Household-based and intermediary-based asset pricing models disagree about the elasticity of the allocations to intermediaries. Household-based models (e.g., Lucas (1978); Campbell and Cochrane (1999); Bansal and Yaron (2004)) focus on households’ risk-return trade-offs, implying that the allocation to intermediaries is so elastic that renders the intermediaries’ portfolio behavior irrelevant. In contrast, intermediary-based models (e.g., He and Krishnamurthy (2013); Koijen and Yogo (2019); Haddad and Muir (2021)) emphasize households’ inelastic allocations, leading to drastically different pricing predictions. We shed light on this discrepancy by examining households’ allocations to intermediaries and estimating their price elasticity in the 13F data of institutional holdings. In a variance decomposition exercise, we find that households primarily respond to intermediaries’ excess demand for stocks by rebalancing their direct stock holdings, while their allocation to intermediaries exacerbates the demand pressure by about 10%. Consistent with theory, allocations to some intermediary types, such as mutual funds and investment advisors, exhibit a negative and significant relationship with the price of their portfolio assets. However, the elasticity of these allocations is not large enough to have a first-order impact on the aggregate demand elasticity for assets. Our results support the central premise of intermediary-based asset pricing models: households do not reallocate enough to eliminate mispricings induced by intermediary-level frictions.

Fund fragility: The role of investor base

Nolwenn Allaire
,
European Central Bank
Johannes Breckenfelder
,
European Central Bank
Marie Hoerova
,
European Central Bank

Abstract

Mutual fund fragility has been linked to liquidity transformation by funds. We show that it matters which investors funds provide liquidity to. Using security-by-security data on investor holdings in the euro area, we document a significant degree of interconnectedness among mutual funds, with other euro area funds representing about 25% of total holdings of mutual fund shares in our sample. Households and the foreign sector also hold about 25% each, insurance companies hold another 14%, with all other investors combined (banks, non-financial corporations, pension funds, etc.) accounting for less than 10% of holdings. We then study run dynamics across different fund-shares of the same fund during the unprecedented liquidity crisis in March 2020. We show that fund shares held more by other euro area mutual funds (households) suffer significantly higher (lower) outflows compared to other shares within the same fund. This gap is not driven by time-varying differences in fund performance.

“ Glossy Green ” Banks: The Disconnect Between Environmental Disclosures and Lending Activities

Mariassunta Giannetti
,
Stockholm School of Economics
Martina Jasova
,
Barnard College
Maria Loumioti
,
University of Texas
Caterina Mendicino
,
European Central Bank

Abstract

We study the relation between banks’ environmental disclosures and lending activities. We create a proxy for environmental-themed disclosures using content analysis on banks’ investor reports. Taking advantage of granular loan-level data from a euro-area credit registry, we show that banks with extensive environmental disclosures lend more to brown borrowers and do not provide more credit to firms in green industries. These results are not driven by banks’ financing of brown borrowers’ transition to greener technologies. Instead, banks lend to the weakest borrowers in brown industries, especially if they have low capital adequacy. Our results suggest that banks overemphasize their climate goals and credentials while continuing their relationships with polluting borrowers.

Discussant(s)
Paul Huebner
,
University of California-Los Angeles
Yao Zeng
,
University of Pennsylvania
Shohini Kundu
,
University of California-Los Angeles
JEL Classifications
  • G2 - Financial Institutions and Services