Are Intermediary Constraints Priced?

• 成果类型: Article
• 署名作者: Du, Wenxin; Hebert, Benjamin; Huber, Amy Wang
• 署名单位: University of Chicago; Federal Reserve System - USA; Federal Reserve Bank - New York; National Bureau of Economic Research; Stanford University
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhac050
• 发表日期: 2023
• 页码: 1464
• 关键词: COMMON RISK-FACTORS; cross-section; liquidity; deviations; arbitrage; DYNAMICS; returns; credit

摘要

Violations of no-arbitrage conditions measure the shadow cost of intermediary constraints. Intermediary asset pricing and intertemporal hedging together imply that the risk of these constraints tightening is priced. We describe a forward CIP trading strategy that bets on CIP violations shrinking and show that its returns help identify the price of this risk. This strategy yields the highest returns for currency pairs associated with the carry trade. The strategy's risk substantially contributes to the volatility of the stochastic discount factor, is correlated with both other near-arbitrages and intermediary wealth measures, and appears to be consistently priced across various asset classes.