Abstract The balance sheet variables of financial institutions have information value for predicting the excess return of assets in time series. Commercial banks’ deposit liabilities are often unable to meet the flexible expansion of their balance sheets, and their marginal financing is also got through repurchase, capital market and other financial market means. The US financial market is dominated by direct financing represented by capital market. The balance sheet variables of securities companies and shadow banks are often more representative of their financial market risk preference. This paper proposes to use the structural liabilities and structural leverage of other deposit companies to represent the risk preference relationship in China’s financial market. On the one hand, the indirect financing represented by commercial banks is the main part of China’s financial market. On the other hand, the use of structural liabilities can more accurately represent the marginal changes in the balance sheet of commercial banks, thus more accurately depicting the risk preference relationship in China’s financial market. Empirical research shows that the structural leverage variable of Chinese financial institutions has predictive ability for the excess return of stocks and bonds in time series. Furthermore, it can use structural vector autoregressive model to examine the relationship between financial structural leverage, asset prices and economic fluctuations. The study finds that there is a dynamic relationship among financial institutions’ balance sheets, credit spreads and macroeconomic variables.
2020, Vol. 37 
