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Inference, arbitrage, and asset price volatility

Adrian, Tobias (contributor) - 2004 - [Elektronische Ressource], Rev. February 2008

, informed investors, and noise traders. Arbitrageurs face a trade-off between arbitrage and inference: they would like to buy … assets in response to temporary price declines (the arbitrage effect) but sell when prices decline permanently (the inference … effect). In equilibrium, the presence of arbitrageurs increases volatility when the inference effect dominates the arbitrage …

Persistent link: https://www.econbiz.de/10002101431

Do stock price bubbles influence corporate investment?

Gilchrist, Simon (contributor); … - 2004 - [Elektronische Ressource]

Building on recent developments in behavioral asset pricing, we develop a model in which an increase in the dispersion of investor beliefs under short-selling constraints predicts a "bubble," or a rise in a stock's price above its fundamental value. Our model predicts that managers respond to...

Persistent link: https://www.econbiz.de/10001936312

The effect of state pension cut legislation on bank values

Mehran, Hamid; Cohen, Lee; Cornette, Marcia Millon; … - Federal Reserve Bank of New York - 2014

This study provides an empirical analysis of the impact of Wisconsin and Ohio pension cut legislation on values of banks operating in Wisconsin and Ohio, banks operating in other states in which pension cut legislation was being considered as Wisconsin and Ohio went through its legislative...

Persistent link: https://www.econbiz.de/10010823097

Nonlinearity and flight to safety in the risk-return trade-off for stocks and bonds

Adrian, Tobias; Crump, Richard K.; Vogt, Erik - Federal Reserve Bank of New York - 2015

We document a highly significant, strongly nonlinear dependence of stock and bond returns on past equity-market volatility as measured by the VIX. We propose a new estimator for the shape of the nonlinear forecasting relationship that exploits additional variation in the cross section of...

Persistent link: https://www.econbiz.de/10011254934

LIBOR: origins, economics, crisis, scandal, and reform

Skeie, David R.; Hou, David - Federal Reserve Bank of New York - 2014

The London Interbank Offered Rate (LIBOR) is a widely used indicator of funding conditions in the interbank market. As of 2013, LIBOR underpins more than $300 trillion of financial contracts, including swaps and futures, in addition to trillions more in variable-rate mortgage and student loans....

Persistent link: https://www.econbiz.de/10010757406

ECB monetary operations and the interbank repo market

Dunne, Peter G.; Fleming, Michael J.; Zholos, Andrey - Federal Reserve Bank of New York - 2013

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...

Persistent link: https://www.econbiz.de/10010732481

Arbitrage-free models of stocks and bonds

Durham, J. Benson - Federal Reserve Bank of New York - 2013

A small but ambitious literature uses affine arbitrage-free models to estimate jointly U.S. Treasury term premiums and …

Persistent link: https://www.econbiz.de/10010735679

Arbitrage-free affine models of the forward price of foreign currency

Durham, J. Benson - Federal Reserve Bank of New York - 2014

inferences about anticipated returns. This study derives arbitrage-free affine forward currency models (AFCMs) with closed …

Persistent link: https://www.econbiz.de/10010751385

Betting against beta (and gamma) using government bonds

Durham, J. Benson - Federal Reserve Bank of New York - 2015

Purportedly consistent with “risk parity” (RP) asset allocation, recent studies document compelling “low risk” trading strategies that exploit a persistently negative relation between Sharpe ratios (SRs) and maturity along the U.S. Treasury (UST) term structure. This paper extends this...

Persistent link: https://www.econbiz.de/10011123661

Asset pricing with horizon-dependent risk aversion

Andries, Marianne; Eisenbach, Thomas M.; Schmalz, Martin C. - Federal Reserve Bank of New York - 2014

We study general equilibrium asset prices in a multi-period endowment economy when agents’ risk aversion is allowed to depend on the maturity of the risk. We find horizon-dependent risk aversion preferences generate a decreasing term structure of risk premia if and only if volatility is...

Persistent link: https://www.econbiz.de/10011097400