The Leverage Factor: Credit Cycles and Asset Returns / Josh Davis, Alan M. Taylor.

Format:

Book

Author/Creator:

Davis, Josh.

Contributor:

National Bureau of Economic Research.

Taylor, Alan M.

Series:

Working Paper Series (National Bureau of Economic Research) no. w26435.

NBER working paper series no. w26435

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Leverage Factor

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2019.

Summary:

Research finds strong links between credit booms and macroeconomic outcomes like financial crises and output growth. Are impacts also seen in financial asset prices? We document this robust and significant connection for the first time using a large sample of historical data for many countries. Credit boom periods tend to be followed by unusually low returns to equities, in absolute terms and relative to bonds. Return predictability due to this leverage factor is distinct from that of established factors like momentum and value and generates trading strategies with meaningful excess profits out-of-sample. These findings pose a challenge to conventional macro-finance theories.

Notes:

Print version record

November 2019.