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Report
Time variation in asset price responses to macro announcements
Grisse, Christian; Goldberg, Linda S. (2013-08-01)
Although the effects of economic news announcements on asset prices are well established, these relationships are unlikely to be stable. This paper documents the time variation in the responses of yield curves and exchange rates using high-frequency data from January 2000 through August 2011. Significant time variation in news effects is present for those announcements that have the largest effects on asset prices. The time variation in effects is explained by economic conditions, including the level of policy rates at the time of the news release, and risk conditions: Government bond yields ...
Staff Reports , Paper 626

Working Paper
Can risk explain the profitability of technical trading in currency markets?
Famiglietti, Matthew; Ivanova, Yuliya; Neely, Christopher J.; Weller, Paul A. (2020-06-12)
Academic studies show that technical trading rules would have earned substantial excess returns over long periods in foreign exchange markets. However, the approach to risk adjustment has typically been rather cursory. We examine the ability of a wide range of models: CAPM, quadratic CAPM, downside risk CAPM, Carhart’s 4-factor model, the C-CAPM, an extended C-CAPM with durable consumption, Lustig-Verdelhan (LV) carry-trade factor model, and models including macroeconomic factors, and foreign exchange volatility, skewness and liquidity, to explain these technical trading returns. No model ...
Working Papers , Paper 2014-033

Working Paper
Arbitrage and Liquidity: Evidence from a Panel of Exchange Traded Funds
Rappoport, David E.; Tuzun, Tugkan (2020-11-30)
Market liquidity is expected to facilitate arbitrage, which in turn should affect the liquidity of the assets traded by arbitrageurs. We study this relationship using a unique dataset of equity and bond ETFs compiled from big trade-level data. We find that liquidity is an important determinant of the efficacy of the ETF arbitrage. For less liquid bond ETFs, Granger-causality tests and impulse responses suggest that this relationship is stronger and more persistent, and liquidity spillovers are observed from portfolio constituents to ETF shares. Our results inform the design of synthetic ...
Finance and Economics Discussion Series , Paper 2020-097

Report
Strategic Sophistication and Trading Profits: An Experiment with Professional Traders
Angrisani, Marco; Guarino, Antonio; Cipriani, Marco (2022-12-01)
We run an experiment where professional traders, endowed with private information, trade an asset over multiple periods. After the trading game, we gather information about the professional traders’ characteristics by having them carry out a series of tasks. We study which of these characteristics predict profits in the trading game. We find that strategic sophistication, as measured in the Guessing Game (for example, through level-k theory), is the only significant determinant of professional traders’ profits. In contrast, profits are not driven by individual characteristics such as ...
Staff Reports , Paper 1044

Working Paper
Passive Ownership and Short Selling
von Beschwitz, Bastian; Honkanen, Pekka; Schmidt, Daniel (2022-12)
We exploit quasi-exogenous variation in passive ownership around the Russell 1000/2000 cutoff to explore the causal effects of passive ownership on the securities lending market. We find that passive ownership causes an increase in lendable supply and short interest, while lending fees remain largely unchanged. The utilization ratio—i.e., the ratio of short interest over lendable supply—goes up, implying that shorting demand increases more than lendable supply. We argue that this additional demand results from an increase in the quality of lendable supply as passive funds are less likely ...
International Finance Discussion Papers , Paper 1365

Journal Article
The Market Events of Mid-September 2019
Afonso, Gara; Cipriani, Marco; Copeland, Adam; Kovner, Anna; La Spada, Gabriele; Martin, Antoine (2021-08-01)
This article studies the mid-September 2019 stress in U.S. money markets: On September 16 and 17, unsecured and secured funding rates spiked, and on September 17, the effective federal funds rate broke the ceiling of the Federal Open Market Committee (FOMC) target range. We highlight two factors that may have contributed to these events. First, reserves may have become scarce for at least some depository institutions, in the sense that these institutions’ reserve holdings may have been close to, or lower than, their desired level. Moreover, frictions in the interbank market may have ...
Economic Policy Review , Volume 27 , Issue 2 , Pages 26

Working Paper
Corporate Green Pledges
Bauer, Michael D.; Huber, Daniel; Offner, Eric; Renkel, Marlene; Wilms, Ole (2024-11-20)
We identify corporate commitments for reductions of greenhouse gas emissions—green pledges—from news articles using a large language model. About 8% of publicly traded U.S. companies have made green pledges, and these companies tend to be larger and browner than those without pledges. Announcements of green pledges significantly and persistently raise stock prices, consistent with reductions in the carbon premium. Firms that make green pledges subsequently reduce their CO2 emissions. Our evidence suggests that green pledges are credible, have material new information for investors, and ...
Working Paper Series , Paper 2024-36

Working Paper
Show me the money: the monetary policy risk premium
Velikov, Mihail; Ozdagli, Ali K. (2016-12-01)
We study how monetary policy affects the cross-section of expected stock returns. For this purpose, we create a parsimonious monetary policy exposure (MPE) index based on observable firm characteristics that are theoretically linked to how firms react to monetary policy. We find that stocks whose prices react more positively to expansionary monetary policy surprises earn lower average returns. This finding is consistent with the intuition that monetary policy is expansionary in bad economic times when the marginal value of wealth is high, and thus high MPE stocks serve as a hedge against bad ...
Working Papers , Paper 16-27

Report
Is there an S&P 500 index effect?
Sarkar, Asani; Kasch, Maria (2011)
We find that the firms included in the S&P 500 index are characterized by large increases in earnings, appreciation in market value, and positive price momentum in the period preceding their index inclusion. This strong preinclusion performance predicts 1) the permanent increase of market value and 2) the change in return comovement, reflected in declines of size, value, and momentum betas, following index inclusion. Nonevent firms with similar performance experience similar appreciation in value and changes in comovement coincident with the event firms. Contrary to the consensus in the ...
Staff Reports , Paper 484

Working Paper
The Dotcom Bubble and Underpricing: Conjectures and Evidence
Sampaio, Joelson Oliveira; Pinheiro, Roberto; de Carvalho, Antonio Gledson (2016-12-21)
We provide conjectures for what caused the price spiral and the high underpricing of the dotcom bubble of 1999?2000. We raise two conjectures for the price spiral. First, given the uncertainty about the growth opportunities generated by the new technologies and their spillover effects across technology industries, investors saw the inflow of a large number of high-growth firms as a sign of high growth rates for the market as a whole. Second, investors interpreted the wave of highly underpriced IPOs as an opportunity to obtain gains by investing in newly public companies. The underpricing ...
Working Papers (Old Series) , Paper 1633

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