The commercial bank leverage factor in US asset prices*

I present novel results on a commercial bank leverage factor that drives U.S. asset prices. Portfolios which load negatively on this risk factor and are comprised of firms that are less resilient in credit expansions earn higher returns on average. In the time-series, a simple buy-and-hold strategy of the market index at medium- and long-horizons illustrates how investors can profit on the commercial bank loan cycle and earn higher returns and Sharpe ratios in recoveries and early stages of an expansion as opposed to credit booms.(c) 2022 Board of Trustees of the University of Illinois. Published by Elsevier Inc. All rights reserved.