Project Details
Projekt
Econometric Analysis of Intermediary Asset Pricing Models: Advancement of Methodologies and Resolution of Empirical Issues
Subject Area
Accounting and Finance
Term
since 2021
Project identifier
Deutsche Forschungsgemeinschaft (DFG) - Project number 447617473
A growing literature is concerned with the role of financial intermediaries for the pricing of assets (intermediary asset pricing, IAP), which provides the leitmotif for this research unit (RU). Being financial economists with a strong econometric background, we have identified some methodological gaps in the IAP literature, which motivate our econometrics-focused research project. The research agenda for the second funding period reflects the expanded scope of the RU in both content and methodology. Our goal is to contribute to an improved understanding of the role intermediaries play in asset pricing and we aim at addressing this topic from different angles. For this purpose, we will rely on moment-based estimation strategies (i.e., empirical likelihood) and on creatively combining the flexibility of statistical learning techniques (e.g., artificial neural networks) with the rigor of traditional econometric methods. In doing so, we will adopt a broader perspective on IAP that also includes authorized participants (APs) as a specific type of intermediary and addresses demand-based approaches. In particular, we will exploit the aforementioned empirical methods for estimating the demand function in demand-based asset pricing settings, assessing the informational content of intermediary stochastic discount factors, empirically evaluating the extent to which APs’ characteristics affect ETF share liquidity and price convergence between ETF shares and their underlying portfolios, and nowcasting bond prices. Answering these research questions poses in all instances methodological challenges that require either developing new estimation strategies altogether or using existing empirical approaches in a non-standard way. Some of these challenges arise from the data themselves (e.g., irregularly spaced time-series data), others directly result from the research question (e.g., the need to model time-varying cointegrating relations linked to explanatory variables). The RU provides an ideal environment for our project, because we can rely on the expertise of the collaborators specializing in theory, as well as the empirically oriented researchers with a deep knowledge of the data-generating processes.
DFG Programme
Research Units
