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Displaying results 1 to 15 of 15.

  1. An empirical analysis of liquidity and its determinants in the German intraday market for electricity
    Author: Hagemann, Simon; Weber, Christoph
    Published: 2013
    Publisher:  University of Duisburg-Essen, Chair for Management Science and Energy Economics, Essen

    This paper presents a theoretical and empirical analysis of liquidity in the German intraday market for electricity. Two models that aim at explaining intraday liquidity are developed. The first model considers the fundamental merit-order and... more

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    This paper presents a theoretical and empirical analysis of liquidity in the German intraday market for electricity. Two models that aim at explaining intraday liquidity are developed. The first model considers the fundamental merit-order and intraday adjustment needs as the drivers of liquidity in a perfectly competitive market. The second model relaxes the assumption of perfect competition in the intraday market and assumes that the trading behavior of profit maximizing market participants influences the liquidity provision. The relevance of commonly used liquidity indicators like the bid ask-spread, resiliency, market depth, price variance, delay and search costs as well as trading volume and the number of trades are analyzed with respect to both models of liquidity. The empirical findings indicate that liquidity in the German intraday market can be explained by the trading model while the purely fundamental model is rejected.

     
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    Source: Union catalogues
    Language: English
    Media type: Book
    Format: Online
    Other identifier:
    hdl: 10419/103296
    Series: EWL Working Paper ; 17/13
    Subjects: Intraday market; electricity; liquidity; fundamental model; trading model
    Scope: Online-Ressource (II, 33 S.), graph. Darst.
  2. How stressed are banks in the interbank market?
    Author: Abbassi, Puriya; Fecht, Falko; Weber, Patrick
    Published: 2013
    Publisher:  Dt. Bundesbank, Frankfurt am Main

    We use a unique data set that comprises each bank’s bids in the Eurosystem’s main refinancing operations and its recourse to the LOLR facility (a) to derive banks’ willingness-to-pay for liquidity through a one-week repo and (b) to show that a bank’s... more

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    Niedersächsische Staats- und Universitätsbibliothek Göttingen
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    Leibniz-Institut für Wirtschaftsforschung Halle, Bibliothek
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    We use a unique data set that comprises each bank’s bids in the Eurosystem’s main refinancing operations and its recourse to the LOLR facility (a) to derive banks’ willingness-to-pay for liquidity through a one-week repo and (b) to show that a bank’s willingness-to-pay is a good indicator for the probability that this bank draws on the LOLR facility. Our results suggest (i) that banks’ willingness-to-pay for liquidity indeed reflects refinancing conditions in the interbank market and (ii) that the willingness-to-pay can serve as an early warning indicator for banking distress.

     
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    Language: English
    Media type: Ebook
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    ISBN: 9783865589668
    Other identifier:
    hdl: 10419/85252
    Series: Discussion paper / Deutsche Bundesbank ; 40/2013
    Subjects: Banks; liquidity; LOLR facility; repos; money markets; frictions
    Scope: Online-Ressource (25, [3] S.), graph. Darst.
  3. Banking globalization, transmission, and monetary policy autonomy
    Author: Goldberg, Linda S.
    Published: 2013
    Publisher:  Federal Reserve Bank of New York, New York, NY

    International financial linkages, particularly through global bank flows, generate important questions about the consequences for economic and financial stability, including the ability of countries to conduct autonomous monetary policy. I address... more

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    International financial linkages, particularly through global bank flows, generate important questions about the consequences for economic and financial stability, including the ability of countries to conduct autonomous monetary policy. I address the monetary autonomy issue in the context of the international policy trilemma: Countries seek three typically desirable but jointly unattainable objectives-stable exchange rates, free international capital mobility, and monetary policy autonomy oriented toward, and effective at, achieving domestic goals. I argue that global banking entails some features that are distinct from the broad issues of capital market openness captured in existing studies. In principle, if global banks with affiliates in foreign markets can reduce frictions in international capital flows, then the macroeconomic policy trilemma could bind tighter and interest rates will exhibit more co-movement across countries. However, if the information content and stickiness of the claims and services provided are enhanced relative to a benchmark alternative, then global banks can weaken the trilemma rather than enhance it. The result is a prediction of heterogeneous effects on monetary autonomy, tied to the business models of the global banks and whether countries are investment or funding locations for those banks. Empirical tests of the trilemma support this view that global bank effects are heterogeneous and that the primary drivers of monetary autonomy are exchange rate regimes.

     
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    Other identifier:
    hdl: 10419/93595
    Series: Staff report / Federal Reserve Bank of New York ; 640
    Subjects: Geldpolitik; Autonomie; Internationale Bank; Globalisierung; Kapitalmobilität; Wechselkurspolitik; Theorie; Welt; policy trilemma; international transmission; monetary policy; bank; global; liquidity; lending channel; internal capital markets; policy trilemma
    Scope: Online-Ressource (34 S.), graph. Darst.
  4. Did liquidity providers become liquidity seekers?
    Author: Choi, Jaewon; Shachar, Or
    Published: 2013
    Publisher:  Federal Reserve Bank of New York, New York, NY

    The misalignment between corporate bond and credit default swap (CDS) spreads (i.e., CDSbond basis) during the 2007-09 financial crisis is often attributed to corporate bond dealers shedding off their inventory, right when liquidity was scarce. This... more

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    The misalignment between corporate bond and credit default swap (CDS) spreads (i.e., CDSbond basis) during the 2007-09 financial crisis is often attributed to corporate bond dealers shedding off their inventory, right when liquidity was scarce. This paper documents evidence against this widespread perception. In the months following Lehman’s collapse, dealers, including proprietary trading desks in investment banks, provided liquidity in response to the large selling by clients. Corporate bond inventory of dealers rose sharply as a result. Although providing liquidity, limits to arbitrage, possibly in the form of limited capital, obstructed the convergence of the basis. We further show that the unwinding of precrisis “basis trades” by hedge funds is the main driver of the large negative basis. Price drops following Lehman’s collapse were concentrated among bonds with available CDS contracts and high activity in basis trades. Overall, our results indicate that hedge funds that serve as alternative liquidity providers at times, not dealers, caused the disruption in the credit market.

     
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    hdl: 10419/93653
    Series: Staff report / Federal Reserve Bank of New York ; 650
    Subjects: CDS-bond basis; limits to arbitrage; credit default swaps; liquidity; corporate bonds; Volcker rule
    Scope: Online-Ressource (37 S.), graph. Darst.
  5. A detrimental feedback loop
    deleveraging and adverse selection
    Author: Bertsch, Christoph
    Published: 2013
    Publisher:  Sveriges Riksbank, Stockholm

    Market distress can be the catalyst of a deleveraging wave, as in the 2007/08 financial crisis. This paper demonstrates how market distress and deleveraging can fuel each other in the presence of adverse selection problems in asset markets. At the... more

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    Market distress can be the catalyst of a deleveraging wave, as in the 2007/08 financial crisis. This paper demonstrates how market distress and deleveraging can fuel each other in the presence of adverse selection problems in asset markets. At the core of the detrimental feedback loop is agents' desire to reduce their reliance on distressed asset markets by decreasing their leverage which in turn amplifies the adverse selection problem in asset markets. In the extreme case, this leads to a market breakdown. I find that adverse selection creates both an "ex-ante" inefficiency because it distorts agents' long-term leverage choices and an "interim" inefficiency because it distorts agents' short-term liquidity management. I derive important implications for central bank policy.

     
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    Other identifier:
    hdl: 10419/103825
    Series: Sveriges Riksbank working paper series ; 277
    Subjects: Leverage; endogenous borrowing constraints; financial crisis; liquidity; asymmetric information; central bank policy
    Scope: Online-Ressource (43 S.)
  6. The scarcity value of Treasury collateral
    repo market effects of security-specific supply and demand factors
    Author: D'Amico, Stefania; Fan, Roger; Kitsul, Yuriy
    Published: 2013
    Publisher:  Federal Reserve Bank of Chicago, Chicago, Ill.

    In the repo market, forward agreements are security-specific (i.e., there are no deliverable substitutes), which makes it an ideal place to measure the value of fluctuations in a security's available supply. In this study, we quantify the scarcity... more

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    In the repo market, forward agreements are security-specific (i.e., there are no deliverable substitutes), which makes it an ideal place to measure the value of fluctuations in a security's available supply. In this study, we quantify the scarcity value of Treasury collateral by estimating the impact of security-specific demand and supply factors on the repo rates of all the outstanding U.S. Treasury securities. Our results indicate the existence of an economically and statistically significant scarcity premium, especially for shorter-term securities. The estimated scarcity effect is quite persistent, seems to be reflected in the Treasury market prices, and could in part explain the flow-effects of the Fed's asset purchase programs. More generally, it provides additional evidence in favor of the scarcity channel of quantitative easing. These findings also suggest that, through the same mechanism, the Fed's reverse repo operations could help alleviate potential shortages of high-quality collateral.

     
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    hdl: 10419/96652
    Series: Working papers / Federal Reserve Bank of Chicago ; 2013-22
    Subjects: Treasury bonds; repo contracts; supply-demand factors; liquidity; Large Scale Asset Purchase programs; Treasury auctions
    Scope: Online-Ressource (39, 6 S.), graph. Darst.
  7. Moral hazard, informed trading, and stock prices
    Author: Collin-Dufresne, Pierre; Fos, Vyacheslav
    Published: 2013
    Publisher:  Swiss Finance Inst., Genève

    We analyze a dynamic model of informed trading where a shareholder accumulates shares in an anonymous market and then expends costly effort to change the firm value. We find that equilibrium prices are affected by the position accumulated by the... more

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    Helmut-Schmidt-Universität, Universität der Bundeswehr Hamburg, Universitätsbibliothek
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    We analyze a dynamic model of informed trading where a shareholder accumulates shares in an anonymous market and then expends costly effort to change the firm value. We find that equilibrium prices are affected by the position accumulated by the shareholder, because the level of effort undertaken is increasing in the size of his acquired position. In equilibrium, price impact has two components: one due to asymmetric information (as in Kyle (1985)) and one due to moral hazard (a new source of adverse selection). Price impact is higher when the activist is more productive and when uncertainty about his position is large. When we consider an 'activist' shareholder --- who accumulates shares in order to increase firm value --- we obtain a trade-off: with more noise trading (less 'price efficiency') the activist can build up a larger stake, which leads to more effort expenditure and higher firm value (more 'economic efficiency'). The model implies that activist ownership disclosure tends to improve market liquidity and value creation by activists and helps differentiate productive activists from stock pickers. Shortening the period during which activists can trade, however, hurts economic efficiency

     
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    Series: Research paper series / Swiss Finance Institute ; 13,70
    Swiss Finance Institute Research Paper ; No. 13-70
    Subjects: Informed trading; asymmetric information; liquidity; moral hazard; shareholder activism; continuous time
    Scope: Online-Ressource (62 S.), graph. Darst.
  8. Do prices reveal the presence of informed trading?
    Author: Collin-Dufresne, Pierre; Fos, Vyacheslav
    Published: 2013
    Publisher:  Swiss Finance Inst., Genève

    Using a comprehensive sample of trades from Schedule 13D filings by activist investors, we study how measures of adverse selection respond to informed trading. We find that on days when activists accumulate shares, measures of adverse selection and... more

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    Using a comprehensive sample of trades from Schedule 13D filings by activist investors, we study how measures of adverse selection respond to informed trading. We find that on days when activists accumulate shares, measures of adverse selection and of stock illiquidity are lower, even though prices are positively impacted. Two channels help explain this phenomenon: (a) activists select times of higher liquidity when they trade, and (b) activists use limit orders. We conclude that when informed traders can select when and how to trade, standard measures of adverse selection may fail to capture the presence of informed trading

     
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    Edition: This Version: July 22, 2013
    Series: Research paper series / Swiss Finance Institute ; 13,69
    Subjects: informed trading; liquidity; transaction costs; selection bias; activist shareholders
    Scope: Online-Ressource (74 S.), graph. Darst.
  9. Price formation and intertemporal arbitrage within a low-liquidity framework
    empirical evidence from European natural gas markets
    Author: Nick, Sebastian
    Published: 2013
    Publisher:  EWI, Univ., Cologne

    In this study, the informational efficiency of the European natural gas market is analyzed by empirically investigating price formation and arbitrage efficiency between spot and futures markets. Econometric approaches are specified that explicitly... more

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    In this study, the informational efficiency of the European natural gas market is analyzed by empirically investigating price formation and arbitrage efficiency between spot and futures markets. Econometric approaches are specified that explicitly account for nonlinearities and the low liquidityframework of the considered gas hubs. The empirical results reveal that price discovery takes place on the futures market, while the spot price subsequently follows the futures market price. Furthermore, there is empirical evidence of significant market frictions hampering intertemporal arbitrage. UK’s NBP seems to be the hub at which arbitrage opportunities are exhausted most efficiently, although there is convergence in the degree of intertemporal arbitrage efficiency over time at the hubs investigated.

     
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    hdl: 10419/92969
    Series: EWI working paper ; 13/14
    Subjects: natural gas market; informational efficiency; liquidity; nonlinear causality; threshold error correction; Kalman filter
    Scope: Online-Ressource (33 S.), graph. Darst.
  10. A search-theoretic model of the term premium
    Author: Geromichalos, Athanasios; Herrenbrueck, Lucas; Salyer, Kevin Duff
    Published: 2013
    Publisher:  Dep. of Economics, Univ. of California, Davis, Calif.

    A consistent empirical feature of bond yields is that term premia are, on average, positive. That is, investors in long term bonds receive higher returns than investors in similar (i.e.\ same default risk) shorter maturity bonds over the same holding... more

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    A consistent empirical feature of bond yields is that term premia are, on average, positive. That is, investors in long term bonds receive higher returns than investors in similar (i.e.\ same default risk) shorter maturity bonds over the same holding period. The majority of theoretical explanations for this observation have viewed the term premia through the lens of the consumption based capital asset pricing model. In contrast, we harken to an older empirical literature which attributes the term premium to the idea that short maturity bonds are inherently more liquid. The goal of this paper is to provide a theoretical justification of this concept. To that end, we employ a model in the tradition of modern monetary theory extended to include assets of different maturities. Short term assets always mature in time to take advantage of random consumption opportunities. Long term assets do not, but agents may liquidate them in a secondary asset market, characterized by search-and-bargaining frictions a la Duffie, Garleanu, and Pedersen (2005). In equilibrium, long term assets have higher rates of return to compensate agents for their relative lack of liquidity. Consistent with empirical findings, our model predicts a steeper yield curve for assets that trade in less liquid secondary markets.

     
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    Other identifier:
    hdl: 10419/79687
    Edition: This Version: June 2013
    Series: Working papers / University of California, Department of Economics ; 13-8
    Subjects: monetary-search models; liquidity; over-the-counter markets; yield curve
    Scope: Online-Ressource (38 S.), graph. Darst.
  11. ECB monetary operations and the interbank repo market
    Author: Dunne, Peter G.; Fleming, Michael J.; Zholos, Andrey
    Published: 2013
    Publisher:  Federal Reserve Bank of New York, New York, NY

    We examine the relationship between monetary policy operations and interbank borrowing and lending of funds using sovereign bonds as collateral. We first establish that, in the precrisis period, there are important but rather weak relations between... more

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    We examine the relationship between monetary policy operations and interbank borrowing and lending of funds using sovereign bonds as collateral. We first establish that, in the precrisis period, there are important but rather weak relations between these funding sources and that this relationship varies within maintenance periods and at the end of the year. Official funding conditions did not meaningfully constrain repo market activity in the 2003-05 period but, in the immediate precrisis period, rate increases led to a sharp contraction in repo activity. Focusing on the crisis period, we identify potentially benign substitution effects between official auctions and repo market activity but our empirical analysis shows that positive innovations in the cost of official funding, due to aggressive bidding, and a limited allotment response, encouraged increased use of the interbank repo market. The analysis informs a discussion of the merits of returning to variable rate operations.

     
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    Other identifier:
    hdl: 10419/93617
    Series: Staff report / Federal Reserve Bank of New York ; 654
    Subjects: repo; funding; liquidity; monetary policy; reserve management
    Scope: Online-Ressource (44 S.), graph. Darst.
  12. Order flow segmentation and the role of dark trading in the price discovery of U.S. treasury securities
    Author: Fleming, Michael J.; Nguyen, Giang H.
    Published: 2013
    Publisher:  Federal Reserve Bank of New York, New York, NY

    This paper studies the workup protocol, a unique trading feature in the U.S. Treasury securities market that resembles a mechanism for discovering dark liquidity. We quantify its role in the price formation process in a model of the dynamics of price... more

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    This paper studies the workup protocol, a unique trading feature in the U.S. Treasury securities market that resembles a mechanism for discovering dark liquidity. We quantify its role in the price formation process in a model of the dynamics of price and segmented order flow induced by the protocol. We find that the dark liquidity pool generally contains less information than its transparent counterpart, but that its role is not trivial. We also show that workups are used more often around volatile times, but that their information role becomes relatively less important at those times compared to that of pre-workup trades. Higher usage of workups is also associated with higher market depth, lower bid-ask spreads, and higher trading intensity. Collectively, the evidence suggests that workups tend to be used more as a channel for liquidity providers to guard against adverse price movements than as a channel to hide private information.

     
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    Language: English
    Media type: Book
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    Other identifier:
    hdl: 10419/93629
    Series: Staff report / Federal Reserve Bank of New York ; 624
    Subjects: dark pool; liquidity; price impact; information share; fixed-income market
    Scope: Online-Ressource (53 S.), graph. Darst.
  13. The correlation puzzle
    the interaction of bond and risk correlation
    Author: Bethke, Sebastian; Kempf, Alexander; Gehde-Trapp, Monika
    Published: 2013
    Publisher:  Centre for Financial Research, Cologne

    Diversification benefits depend on the correlation between assets. Unfortunately, asset correlation increases when it is most needed. We examine bond correlation using a broad sample of US corporate bonds. We find bond correlation to be higher during... more

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    Diversification benefits depend on the correlation between assets. Unfortunately, asset correlation increases when it is most needed. We examine bond correlation using a broad sample of US corporate bonds. We find bond correlation to be higher during the financial crisis in 2008. Increased bond correlation results from higher correlation between corporate bond risk factors. Risk factor correlation increases when investor sentiment worsens. This suggests that corporate bond investors change their perception of risk factors, which results in higher risk factor correlation and finally higher bond correlation.

     
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    Language: English
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    Other identifier:
    hdl: 10419/80433
    Edition: This version: August 7, 2013
    Series: CFR working paper ; 13-06
    Subjects: bond correlation; credit risk; liquidity; risk factor correlation; investor sentiment
    Scope: Online-Ressourcee (51 S.), graph. Darst.
    Notes:

    Zsfassung in dt. Sprache
  14. The role of interbank relationships and liquidity needs
    Author: Craig, Ben R.; Fecht, Falko; Tümer-Alkan, Günseli
    Published: 2013
    Publisher:  Dt. Bundesbank, Frankfurt am Main

    In this paper, we focus on the interconnectedness of banks and the price they pay for liquidity. We assess how the concentration of credit relationships and the position of a bank in the network topology of the system influence the bank’s ability to... more

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    Niedersächsische Staats- und Universitätsbibliothek Göttingen
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    Leibniz-Institut für Wirtschaftsforschung Halle, Bibliothek
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    Staats- und Universitätsbibliothek Hamburg Carl von Ossietzky
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    ZBW - Leibniz-Informationszentrum Wirtschaft, Standort Kiel
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    Universitätsbibliothek Osnabrück
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    In this paper, we focus on the interconnectedness of banks and the price they pay for liquidity. We assess how the concentration of credit relationships and the position of a bank in the network topology of the system influence the bank’s ability to meet its liquidity demand. We use quarterly data of bilateral interbank credit exposures between all German banks from 2000 to 2008 to measure interbank relationships and the network characteristics. We match these data with the bids placed by the individual banks in the European Central Bank’s (ECB) weekly repo auctions. The bids measure each bank’s willingness to pay for liquidity since they had variable rate tenders with a “pay-your-bid” price. Controlling for bank characteristics and the daily fulfillment of reserve requirements, we find that banks with a more diversified borrowing structure in the interbank market bid significantly less aggressively and pay a lower price for liquidity in the ECB’s main refinancing operations. These findings suggest that incentives to diversify bank liquidity risk dominate the benefits of private information. When the network position of the bank is taken into account, we find that central lenders in the money market bid more aggressively in the auctions.

     
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    Media type: Ebook
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    ISBN: 9783865589972
    Other identifier:
    hdl: 10419/91729
    RVK Categories: QB 910
    Series: Discussion paper / Deutsche Bundesbank ; 54/2013
    Subjects: Interbank markets; liquidity; relationship lending; networks
    Scope: Online-Ressource (36, [6] S.)
  15. Central clearing and asset prices
    Author: Menkveld, Albert J.; Pagnotta, Emiliano; Zoican, Marius A.
    Published: 2013

    We investigate the effects of introducing a central clearing counterparty (CCP) on securities prices by adopting as an experimental construct the 2009 CCP reform in three Nordic markets. We find that, relative to other European economies, these... more

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    We investigate the effects of introducing a central clearing counterparty (CCP) on securities prices by adopting as an experimental construct the 2009 CCP reform in three Nordic markets. We find that, relative to other European economies, these countries experience market-adjusted equity returns of -1.08% per month during a 16-month announcement window. We also find negative effects on price-earnings ratios. The decrease in prices is less pronounced for stocks with low number of counterparties and,consistent with the margin-CAPM, more pronounced for stocks with higher margins. Our results suggest that introducing a CCP may have unintended negative consequences for public corporations.

     
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    hdl: 10419/87573
    Series: Array ; 2013,181
    Subjects: clearing; asset prices; margins; liquidity
    Scope: Online-Ressource (52 S.), graph. Darst.