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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

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

The equity risk premium: a review of models

Duarte, Fernando; Rosa, Carlo - Federal Reserve Bank of New York - 2015

We estimate the equity risk premium (ERP) by combining information from twenty models. The ERP in 2012 and 2013 reached heightened levels—of around 12 percent—not seen since the 1970s. We conclude that the high ERP was caused by unusually low Treasury yields.

Persistent link: https://www.econbiz.de/10011185869

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

Asset price effects of peer benchmarking: evidence from a natural experiment

Acharya, Sushant; Pedraza, Alvaro - Federal Reserve Bank of New York - 2015

We estimate the effects of peer benchmarking by institutional investors on asset prices. To identify trades purely due to peer benchmarking as separate from those based on fundamentals or private information, we exploit a natural experiment involving a change in a government-imposed...

Persistent link: https://www.econbiz.de/10011272877

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

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