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Leverage and asset prices: an experiment
Houser, Daniel; Fostel, Ana; Cipriani, Marco (2012)
This is the first paper to test the asset pricing implication of leverage in a laboratory. We show that as theory predicts, leverage increases asset prices: When an asset can be used as collateral (that is, when the asset can be bought on margin), its price goes up. This increase is significant, and quantitatively close to what theory predicts. However, important deviations from the theory arise in the laboratory. First, the demand for the asset shifts when it can be used as a collateral, even though agents do not exhaust their purchasing power when collateralized borrowing is not allowed. ...
Staff Reports , Paper 548

Report
Risk Preferences at the Time of COVID-19: An Experiment with Professional Traders and Students
Cipriani, Marco; http://fedora:8080/fcrepo/rest/objects/authors/; Angrisani, Marco; Ortiz de Zarate Pina, Julen; Guarino, Antonio (2020-05-01)
We study whether the COVID-19 pandemic has impacted risk preferences, comparing the results of experiments conducted before and during the outbreak. In each experiment, we elicit risk preferences from two sample groups: professional traders and undergraduate students. We find that, on average, risk preferences have remained constant for both pools of participants. Our results suggest that the increases in risk premia observed during the pandemic are not due to changes in risk appetite; rather, they are solely due to a change in beliefs by market participants. The findings of our paper support ...
Staff Reports , Paper 927

Discussion Paper
The Fed’s Balance Sheet Runoff and the ON RRP Facility
Cipriani, Marco; Clouse, James A.; Logan, Lorie; Martin, Antoine; Riordan, Will (2022-04-11)
A 2017 Liberty Street Economics post described the balance sheet effects of the Federal Open Market Committee’s decision to cease reinvestments of maturing securities—that is, the mechanics of the Federal Reserve’s balance sheet “runoff.” At the time, the overnight reverse repo (ON RRP) facility was fairly small (less than $200 billion for most of July 2017) and was not mentioned in the post for the sake of simplicity. Today, by contrast, take-up at the ON RRP facility is much larger (over $1.5 trillion for most of 2022). In this post, we update the earlier analysis and describe how ...
Liberty Street Economics , Paper 20220411

Discussion Paper
Investigating the Proposed Overnight Treasury GC Repo Benchmark Rates
Cipriani, Marco; Sherman, Scott; Solimine, Brett; Copeland, Adam; Bayeux, Kathryn; Altman, Alexandra (2016-12-19)
In its recent ?Statement Regarding the Publication of Overnight Treasury GC Repo Rates,? the Federal Reserve Bank of New York, in cooperation with the U.S. Treasury Department?s Office of Financial Research, announced the potential publication of three overnight Treasury general collateral (GC) repurchase (repo) benchmark rates. Each of the proposed rates is designed to capture a particular segment of repo market activity. All three rates, as currently envisioned, would initially be based on transaction-level overnight GC repo trades occurring on tri-party repo platforms. The first rate would ...
Liberty Street Economics , Paper 20161219

Discussion Paper
Monetary Policy and Money Market Funds in Europe
Cipriani, Marco; Fricke, Daniel; Greppmair, Stefan; La Spada, Gabriele; Paludkiewicz, Karol (2024-04-11)
As shown in a past Liberty Street Economics post, in the United States, the yields of money market fund (MMF) shares respond to changes in monetary policy rates much more than the rates of bank deposits; in other words, the MMF beta is much higher than the deposit beta. Consistent with this, the size of the U.S. MMF industry fluctuates over the interest rate cycle, expanding during times of monetary policy tightening. In this post, we show that the relationship between the policy rates of the European Central Bank (ECB) and the size of European MMFs investing in euro-denominated securities is ...
Liberty Street Economics , Paper 20240411

Discussion Paper
Monetary Policy Transmission and the Size of the Money Market Fund Industry: An Update
Afonso, Gara; Cipriani, Marco; Huang, Catherine; Hussein, Abduelwahab; La Spada, Gabriele (2023-04-03)
The size of the money market fund (MMF) industry co-moves with the monetary policy cycle. In a post published in 2019, we showed that this co-movement is likely due to the stronger response of MMF yields to monetary policy tightening relative to bank deposit rates, combined with MMF shares and bank deposits being close substitutes from an investor’s perspective. In this post, we update the analysis and zoom in to the current monetary policy tightening by the Federal Reserve.
Liberty Street Economics , Paper 20230403

Discussion Paper
Borrowing, Lending, and Swapping Collateral in GCF Repo®
Copeland, Adam; Cipriani, Marco (2016-05-05)
In the third post in this series, we examined GCF Repo traders? end-of-day strategies. In this final post, we further our understanding of dealers? behavior by looking at their trading pattern within the day.
Liberty Street Economics , Paper 20160505

Discussion Paper
Herd Behavior in Financial Markets
Cipriani, Marco; Guarino, Antonio (2015-03-09)
Over the last twenty-five years, there has been a lot of interest in herd behavior in financial markets—that is, a trader’s decision to disregard her private information to follow the behavior of the crowd. A large theoretical literature has identified abstract mechanisms through which herding can arise, even in a world where people are fully rational. Until now, however, the empirical work on herding has been completely disconnected from this theoretical analysis; it simply looked for statistical evidence of trade clustering and, when that evidence was present, interpreted the clustering ...
Liberty Street Economics , Paper 20150309

Discussion Paper
Stablecoins and Crypto Shocks: An Update
Anadu, Kenechukwu E.; Azar, Pablo D.; Cipriani, Marco; Eisenbach, Thomas M.; Huang, Catherine; Landoni, Mattia; La Spada, Gabriele; Macchiavelli, Marco; Malfroy-Camine, Antoine; Wang, J. Christina (2025-04-23)
Stablecoins are crypto assets whose value is pegged to that of a fiat currency, usually the U.S. dollar. In our first Liberty Street Economics post, we described the rapid growth of stablecoins, the different types of stablecoin arrangements, and the May 2022 run on TerraUSD, the fourth largest stablecoin at the time. In a subsequent post, we estimated the impact of large declines in the price of bitcoin on cumulative net flows into stablecoins and showed the existence of flight-to-safety dynamics similar to those observed in money market mutual funds during periods of stress. In this post, ...
Liberty Street Economics , Paper 20250423

Discussion Paper
Discount Window Stigma After the Global Financial Crisis
Armantier, Olivier; Cipriani, Marco; Sarkar, Asani (2025-01-17)
The rapidity of deposit outflows during the March 2023 banking run highlights the important role that the Federal Reserve’s discount window should play in strengthening financial stability. A lack of borrowing, however, has plagued the discount window for decades, likely due to banks’ concerns about stigma—that is, their unwillingness to borrow at the discount window because it may be viewed as a sign of financial weakness in the eyes of regulators and market participants. The discount window has been reformed several times to alleviate this problem. Although the presence of stigma ...
Liberty Street Economics , Paper 20250117

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