Abstract
A common prediction of macroeconomic models of credit market frictions is that the tightness of financial constraints is countercyclical. Theory suggests a negative collateralizability premium; that is, capital that can be used as collateral to relax financial constraints insures against aggregate shocks and commands a lower risk compensation compared with noncollateralizable assets. We show that a long-short 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.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 5821-5855 |
| Number of pages | 35 |
| Journal | Review of Financial Studies |
| Volume | 33 |
| Issue number | 12 |
| DOIs | |
| State | Published - Dec 1 2020 |
Bibliographical note
Publisher Copyright:© 2020 The Author(s) 2020.