Séminaire
Margin-Based Asset Pricing and Deviations from the Law of One Price
Nicolae Garleanu (Berkeley)
Fédération des Banques Françaises Seminar
TSE, 12 octobre 2009, 12h30–14h00, salle MF 323
Référence
Nicolae Garleanu (Berkeley), « Margin-Based Asset Pricing and Deviations from the Law of One Price », Fédération des Banques Françaises Seminar, TSE, 12 octobre 2009, 12h30–14h00, salle MF 323.
Résumé
In a model with heterogeneous-risk-aversion agents facing margin constraints, we show how securities’ required returns are characterized both by their betas and their margins. Negative shocks to fundamentals make margin constraints bind, lowering risk-free rates and raising Sharpe ratios of risky securities, especially for high-margin securities. Such a funding liquidity crisis gives rise to “bases,” that is, price gaps between securities with identical cash-flows but different margins. In the time series, bases depend on the shadow cost of capital, which can be captured through the interest- rate spread between collateralized and uncollateralized loans, and, in the cross section, they depend on relative margins. We apply the model empirically to CDS-bond bases and other deviations from the Law of One Price, and to evaluate the Fed lending facilities.