Asset Price Dynamics in Partially Segmented Markets

Greenwood, Robin; Hanson, Samuel G.; Liao, Gordon Y.

doi:10.1093/rfs/hhy048

Cited by 104 publications

(53 citation statements)

References 51 publications

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“…12 Fifth, and perhaps most important, it can be hard for an event study to measure persistence. It may take some time before changes in asset supplies are fully reflected in prices and yields (Greenwood, Hanson, and Liao 2018). The dilemma is that an event window of sufficient length to account for a gradual response will include "noise" resulting from the arrival of additional information and events, making it less likely to discern a statistically significant impact of the policy.…”

Section: Event Studiesmentioning

confidence: 99%

Outside the Box: Unconventional Monetary Policy in the Great Recession and Beyond

Kuttner

2018

Journal of Economic Perspectives

145

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In November 2008, the Federal Reserve faced a deteriorating economy and a financial crisis. The federal funds rate had already been reduced to virtually zero. Thus, the Federal Reserve turned to unconventional monetary policies. Through “quantitative easing,” the Fed announced plans to buy mortgage-backed securities and debt issued by government-sponsored enterprises. Subsequent purchases would eventually lead to a five-fold expansion in the Fed’s balance sheet, from $900 billion to $4.5 trillion, and leave the Fed holding over 20 percent of all mortgage-backed securities and marketable Treasury debt. In addition, Fed policy statements in December 2008 began to include explicit references to the likely path of the federal funds interest rate, a policy that came to be known as “forward guidance.” The Fed ceased its direct asset purchases in late 2014. Starting in October 2017, it has allowed the balance sheet to shrink gradually as existing assets mature. From December 2015 through June 2018, the Fed has raised the federal funds interest rate seven times. Thus, the time is ripe to step back and ask whether the Fed’s unconventional policies had the intended expansionary effects—and by extension, whether the Fed should use them in the future.

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Section: Event Studiesmentioning

confidence: 99%

Outside the Box: Unconventional Monetary Policy in the Great Recession and Beyond

Kuttner

2018

Journal of Economic Perspectives

145

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“…Case 3. Furthermore, a number of studies suggest that equity and debt markets are partially segmented (Duarte, Longstaff, and Yu (2007), Kapadia and Pu (2012), Choi and Kim (2018), Greenwood, Hanson, and Liao (2018)). Equity and debt investors may have different beliefs, risk preferences, or constraints.…”

Section: B Sources Of Mispricingsmentioning

confidence: 99%

Nonfinancial Firms as Cross‐Market Arbitrageurs

2019

The Journal of Finance

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I demonstrate that nonfinancial corporations act as cross‐market arbitrageurs in their own securities. Firms use one type of security to replace another in response to shifts in relative valuations, inducing negatively correlated financing flows in different markets. Net equity repurchases and net debt issuance both increase when expected excess returns on debt are particularly low, or when expected excess returns on equity are relatively high. Credit valuations affect equity financing as much as equity valuations do, and vice versa. Cross‐market corporate arbitrage is most prevalent among large, unconstrained firms, and helps account for aggregate financing patterns.

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“…According to a "portfolio rebalancing" (e.g., Tobin, 1958Tobin, , 1969 channel, corporate bonds are imperfect substitutes for e.g. government bonds, especially when they are characterized by (relatively) high credit risk (Greenwood et al, 2016). As such, these operations only had a small impact on credit premia, as shown by Krishnamurthy et al (2011) for the US case.…”

Section: Introductionmentioning

confidence: 99%

When Central Banks Buy Corporate Bonds: Target Selection and Impact of the European Corporate Sector Purchase Program

Galema

Lugo

2017

SSRN Journal

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In March 2016 the European Central Bank (ECB) announced the Corporate Sector Purchase Program (CSPP) as part of its expanded asset purchase program. Using hand-collected, weekly lists of bonds purchased and held under the CSPP, we investigate the drivers of the purchase decisions and the impact of the program on the financing decisions of targeted firms. We find that, consistent with the goal of decreasing credit premia while minimizing price distortions, purchases of eligible bonds characterized by both higher credit risk and higher liquidity are more likely and more timely. Bonds issued by firms more likely to face difficulties in tapping the credit market directly are also more likely to be purchased. The CSPP appears effective in alleviating these difficulties. Firms targeted by the program increase their amount of bonds outstanding significantly more than non-targeted eligible issuers; the effect is mostly driven by companies making limited use of market debt before the start of the program. However, no difference is found in the variation of total debt between targeted and non-targeted eligible issuers. Together, these results suggest that the CSPP has favored the substitution of bonds for other forms of debt capital.

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Asset Price Dynamics in Partially Segmented Markets

Cited by 104 publications

References 51 publications

Outside the Box: Unconventional Monetary Policy in the Great Recession and Beyond

Outside the Box: Unconventional Monetary Policy in the Great Recession and Beyond

Nonfinancial Firms as Cross‐Market Arbitrageurs

When Central Banks Buy Corporate Bonds: Target Selection and Impact of the European Corporate Sector Purchase Program

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