Our speaker will be Veronesi Pietro (Chicago Booth).

He will give a talk on "Leverage".

The talk will take place at 12:00-13:00 am in seminar room D4.0.133.

Abstract: Differential variation in households’ risk preferences over the business cycle affects the demand and supply of debt securities, which, in turn, affect intermediaries’ balance sheets. As in the data, our frictionless model predicts that intermediaries’ debt declines in contractions when their financial risk increases and asset prices drop, thus mimicking active deleveraging. As intermediaries’ leverage proxies for aggregate risk aversion, it predicts asset returns. Our model is consistent with poorer households borrowing more and with levered households deleveraging in crisis and "fire selling" their risky securities. Yet, as empirically observed, their debt-to-wealth ratios increase as higher discount rates make their wealth decline faster.