Search Results
Working Paper
Fed-Driven Systemic Tail Risk: High-Frequency Measurement, Evidence and Implications
We develop a framework to measure market-wide (systemic) tail risk in the cross-section of asset returns. Using high-frequency data on individual U.S. stocks and sector-specific ETF portfolios, we estimate time-varying jump intensities and multi-asset tail risk around Fed policy announcements. While most FOMC announcements generate systemic left-tail risk, there is no evidence that macro announcements have a similar effect. The magnitude of the tail risk induced by Fed policy announcements varies over the business cycle, peaks during the global financial crisis and remains high during phases ...
Working Paper
Estimation of the discontinuous leverage effect: Evidence from the NASDAQ order book
An extensive empirical literature documents a generally negative correlation, named the ?leverage effect,? between asset returns and changes of volatility. It is more challenging to establish such a return-volatility relationship for jumps in high-frequency data. We propose new nonparametric methods to assess and test for a discontinuous leverage effect ? i.e. a relation between contemporaneous jumps in prices and volatility ? in high-frequency data with market microstructure noise. We present local tests and estimators for price jumps and volatility jumps. Five years of transaction data from ...
Working Paper
Mind Your Language: Market Responses to Central Bank Speeches
Researchers have carefully studied post-meeting central bank communication and have found that it often moves markets, but they have paid less attention to the more frequent central bankers’ speeches. We create a novel dataset of US Federal Reserve speeches and use supervised multimodal natural language processing methods to identify how monetary policy news affect financial volatility and tail risk through implied changes in forecasts of GDP, inflation, and unemployment. We find that news in central bankers’ speeches can help explain volatility and tail risk in both equity and bond ...
Working Paper
Systemic Tail Risk: High-Frequency Measurement, Evidence and Implications
We develop a new framework to measure market-wide (systemic) tail risk in the cross-section of high-frequency stock returns. We estimate the time-varying jump intensities of asset prices and introduce a testing approach that identifies multi-asset tail risk based on the release times of scheduled news announcements. Using high-frequency data on individual U.S. stocks and sector-specific ETF portfolios, we find that most of the FOMC announcements create systemic left tail risk, but there is no evidence that macro announcements do so. The magnitude of the tail risk induced by Fed news varies ...
Working Paper
Heterogeneity in the Marginal Propensity to Consume: Evidence from Covid-19 Stimulus Payments
We identify 16,016 recipients of Covid-19 Economic Impact Payments in anonymized transaction-level debit card data from Facteus. We use an event study framework to show that in the two weeks following a sudden $1,200 payment from the IRS, consumers immediately increased spending by an average of $577, implying a marginal propensity to consume (MPC) of 48%. Consumer spending falls back to normal levels after two weeks. Stimulus recipients who live paycheck-to-paycheck spend 68% of the stimulus payment immediately, while recipients who save much of their monthly income spend 23% of the stimulus ...
Working Paper
Fed-Driven Systemic Tail Risk: High-Frequency Measurement, Evidence and Implications
We develop a framework to measure market-wide (systemic) tail risk in the cross-section of asset returns. Using high-frequency data on individual U.S. stocks and sector-specific ETF portfolios, we estimate time-varying jump intensities and multi-asset tail risk around Fed policy announcements. While most FOMC announcements generate systemic left-tail risk, there is no evidence that macro announcements have a similar effect. The magnitude of the tail risk induced by Fed policy announcements varies over the business cycle, peaks during the global financial crisis and remains high during phases ...
Working Paper
The Short Lags of Monetary Policy
We examine the transmission of monetary policy shocks to the macroeconomy at high frequency. To do so, we construct daily consumption and investment aggregates from bank transaction records and leverage administrative data on daily corporate sales and employment for Spain. We show that variables typically viewed as slow-moving, such as consumption and corporate sales, respond significantly within weeks. By contrast, aggregate employment and (monthly) consumer prices adjust only gradually. Disaggregating responses by sector, consumption category and supply-chain distance from final demand, we ...
Working Paper
Heterogeneity in the Marginal Propensity to Consume: Evidence from Covid-19 Stimulus Payments
We identify 22,340 recipients of Covid-19 Economic Impact Payments in anonymized transaction-level debit card data from Facteus. We use an event study framework to show that in the two weeks following a sudden $1,200 payment from the IRS, consumers immediately increased spending by an average of $604, implying a marginal propensity to consume (MPC) of 50%. Consumer spending fell back to normal levels after two weeks. Stimulus recipients who live paycheck-to-paycheck spend 62% of the stimulus payment within two weeks, while recipients who save much of their monthly income spend only 35% of the ...
Working Paper
Mind Your Language: Market Responses to Central Bank Speeches
Post-meeting central bank communication often moves markets, but researchers have paid less attention to the more frequent central bankers’ speeches. We create a novel dataset of U.S. Federal Reserve speeches and develop supervised multimodal natural language processing methods to identify how monetary policy news affect bond and stock market volatility and tail risk through implied changes in forecasts of GDP, inflation, and unemployment. We find that forecast revisions derived from FOMC member speeches can help explain volatility and tail risk in both equity and bond markets. Speeches ...
Working Paper
Investing in the Batteries and Vehicles of the Future: A View Through the Stock Market
A large number of companies operating in the EV and battery supply chain have listed on a U.S. stock exchange in recent years. I compile a unique data set of high-frequency stock returns for those companies and investigate the extent to which an “industry” factor specific to the EV and battery supply chain (an “EV” factor) can explain their returns. Those returns are decomposed into systematic and idiosyncratic components, with the former given by a set of latent factors extracted from a large panel of stock returns using high-frequency principal components. It is found that a market ...