There is a problem of time-scale in intermediary asset pricing. Fluctuations in the risk-bearing capacity of broker-dealers drive fluctuations in asset prices. While we have data on dealer balance sheets on a quarterly basis, dealers care more about day-to-day or even intra-day fluctuations. By working with quarterly numbers, we fold away the vast bulk of asset price variation that dealers care about the most. This works for the purposes of investors more patient than day traders. But it is hardly satisfactory from an analytical perspective. Here we suggest a way to get around this problem by identifying a proxy for dealer risk appetite that is available on a daily basis.
Intermediary Asset Pricing at Daily Frequency
Intermediary Asset Pricing at Daily Frequency
Intermediary Asset Pricing at Daily Frequency
There is a problem of time-scale in intermediary asset pricing. Fluctuations in the risk-bearing capacity of broker-dealers drive fluctuations in asset prices. While we have data on dealer balance sheets on a quarterly basis, dealers care more about day-to-day or even intra-day fluctuations. By working with quarterly numbers, we fold away the vast bulk of asset price variation that dealers care about the most. This works for the purposes of investors more patient than day traders. But it is hardly satisfactory from an analytical perspective. Here we suggest a way to get around this problem by identifying a proxy for dealer risk appetite that is available on a daily basis.