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Working Paper
The Effects of the Federal Reserve Chair’s Testimony on Interest Rates and Stock Prices
Gordon, Matthew V.; Lunsford, Kurt Graden (2023-11-13)
We study how congressional testimony about monetary policy by the Chair of the Board of Governors of the Federal Reserve System affects interest rates and stock prices. First, we study testimony associated with the Federal Reserve’s Monetary Policy Reports (MPRs) to Congress. Testimony for a particular MPR is usually given on two days, one day for each chamber of Congress. We separately study the first day and second day of MPR testimony. We also study testimonies not associated with MPRs but that are still related to monetary policy. We find that first-day MPR testimonies cause the largest ...
Working Papers , Paper 23-26

Working Paper
Level Shifts in Beta, Spurious Abnormal Returns and the TARP Announcement
Saxena, Konark; Reeves, Jonathan J.; Prono, Todd; Phin, Andrew (2018-11-30)
Using high frequency data, we develop an event study method to test for level shifts in beta and measure abnormal returns for events that produce such level shifts. Using this method, we estimate abnormal returns for the Troubled Asset Relief Program (TARP) announcement and find that its abnormal returns are largely realized on the first day. The abnormal returns in the remaining post event period, which show up as a drift using standard methodology, are attributed to level shifts in beta.
Finance and Economics Discussion Series , Paper 2018-081

Report
Who Sees the Trades? The Effect of Information on Liquidity in Inter-Dealer Markets
Garratt, Rod; Martin, Antoine; Townsend, Robert M.; Lee, Michael Junho (2019-07-01)
Dealers, who strategically supply liquidity to traders, are subject to both liquidity and adverse selection costs. While liquidity costs can be mitigated through inter-dealer trading, individual dealers? private motives to acquire information compromise inter-dealer market liquidity. Post-trade information disclosure can improve market liquidity by counteracting dealers? incentives to become better informed through their market-making activities. Asymmetric disclosure, however, exacerbates the adverse selection problem in inter-dealer markets, in turn decreasing equilibrium liquidity ...
Staff Reports , Paper 892

Working Paper
Dotcom Extreme Underpricing
Sampaio, Joelson Oliveira; Pinheiro, Roberto; de Carvalho, Antonio Gledson (2017-07-25)
We conjecture that the Dotcom abnormal underpricing resulted from the emergence a large cohort of firms racing for market leadership/survivorship. Fundamentals pricing at the IPO was part of their strategy. Consistent with our conjecture, firms? strategic goals and characteristics fully explain the abnormal underpricing. Contrary to alternatives explanations, underpricing was not associated with top underwriting; there was no deterioration of issuers? quality; and top underwriters and analysts became more selective.
Working Papers (Old Series) , Paper 1714

Working Paper
Monetary policy surprises, positions of traders, and changes in commodity futures prices
Jamali, Ibrahim; Gospodinov, Nikolay (2013-11-01)
Using futures data for the period 1990?2008, this paper finds evidence that expansionary monetary policy surprises tend to increase crude and heating oil prices, and contractionary monetary policy shocks increase gold and platinum prices. Our analysis uncovers substantial heterogeneity in the magnitude of this response to positive and negative surprises across different commodities and commodity groups. The results also suggest that the positions of futures traders for the metals and energy commodities strongly respond to monetary policy shocks. The adjustment of the net long positions of ...
FRB Atlanta Working Paper , Paper 2013-12

Report
Does central clearing reduce counterparty risk in realistic financial networks?
Garratt, Rod; Zimmerman, Peter (2015-03-01)
Novating a single asset class to a central counterparty (CCP) in an over-the-counter derivatives trading network impacts both the mean and variance of total net exposures between counterparties. When a small number of dealers trade in a relatively large number of asset classes, central clearing increases the mean and variance of net exposures, which may lead to increased counterparty risk and higher margin needs. There are intermediate cases where there is a trade-off: The introduction of a CCP leads to an increase in expected net exposures but this increase is accompanied by a reduction in ...
Staff Reports , Paper 717

Working Paper
Generating Options-Implied Probability Densities to Understand Oil Market Events
Londono, Juan M.; Datta, Deepa Dhume; Ross, Landon J. (2014-10-29)
We investigate the informational content of options-implied probability density functions (PDFs) for the future price of oil. Using a semiparametric variant of the methodology in Breeden and Litzenberger (1978), we investigate the fit and smoothness of distributions derived from alternative PDF estimation methods, and develop a set of robust summary statistics. Using PDFs estimated around episodes of high geopolitical tensions, oil supply disruptions, and macroeconomic data releases, we explore the extent to which oil price movements are expected or unexpected, and whether agents believe ...
International Finance Discussion Papers , Paper 1122

Report
Information and Market Power in DeFi Intermediation
Azar, Pablo D.; Casillas, Adrian; Farboodi, Maryam (2024-05-01)
The decentralized nature of blockchain markets has given rise to a complex and highly heterogeneous market structure, gaining increasing importance as traditional and decentralized (DeFi) finance become more interconnected. This paper introduces the DeFi intermediation chain and provides theoretical and empirical evidence for private information as a key determinant of intermediation rents. We propose a repeated bargaining model that predicts that profit share of Ethereum market participants is positively correlated with their private information, and employ a novel instrumental variable ...
Staff Reports , Paper 1102

Working Paper
Do Sustainable Investment Strategies Hedge Climate Change Risks? Evidence from Germany's Carbon Tax
Ochoa, Marcelo; Paustian, Matthias; Wilcox, Laura (2022-11-04)
It is difficult to assess the effectiveness of investment strategies that screen companies based on environmental criteria to hedge climate change risk because physical risks have not yet fully materialized and policies to combat climate change are usually widely anticipated. This paper sidesteps these limitations by analyzing the stock market response to plausibly exogenous changes in expectations about the level of a carbon tax in Germany. The risk-adjusted return on two sustainable investment approaches---screening companies based on environmental scores and on firms' carbon ...
Finance and Economics Discussion Series , Paper 2022-073

Working Paper
Passive Ownership and Short Selling
von Beschwitz, Bastian; 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

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