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Measuring limits of Arbitrage in fixed-income markets
Fontaine, Jean-Sébastien; Nolin, Guillaume - 2017
We use relative value to measure limits to arbitrage in fixed-income markets. Relative value captures apparent … deviations from no-arbitrage relationships. It is simple, intuitive and can be computed model-free for any bond. A pseudo … therefore a better proxy for limits to arbitrage. We construct relative value indices for the US, UK, Japan, Germany, Italy …
Persistent link: https://www.econbiz.de/10011777981
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Monetary commitment and the level of public debt
Gnocchi, Stefano; Lambertini, Luisa - 2016
We analyze the interaction between committed monetary policy and discretionary fiscal policy in a model with public debt, endogenous government expenditures, distortive taxation and nominal rigidities. Fiscal decisions lack commitment but are Markovperfect. Monetary commitment to an interest...
Persistent link: https://www.econbiz.de/10011431600
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Opaque assets and rollover risk
Ahnert, Toni; Nelson, Benjamin F. - 2016
We model the asset-opacity choice of an intermediary subject to rollover risk in wholesale funding markets. Greater opacity means investors form more dispersed beliefs about an intermediary’s profitability. The endogenous benefit of opacity is lower fragility when profitability is expected to...
Persistent link: https://www.econbiz.de/10011451106
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Retail order flow segmentation
Garriott, Corey; Walton, Adrian - 2016
In August 2012, the New York Stock Exchange launched the Retail Liquidity Program (RLP), a trading facility that enables participating organizations to quote dark limit orders executable only by retail traders. A Hasbrouck (1991) structural vector autoregression shows that the facility increased...
Persistent link: https://www.econbiz.de/10011456111
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Estimating systematic risk under extremely adverse market conditions
Oordt, Maarten R. C. van; Chen Zhou - 2016
This paper considers the problem of estimating a linear model between two heavy-tailed variables if the explanatory variable has an extremely low (or high) value. We propose an estimator for the model coefficient by exploiting the tail dependence between the two variables and prove its...
Persistent link: https://www.econbiz.de/10011458791
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Are long-horizon expectations (de-)stabilizing? : theory and experiments
Evans, George W.; Hommes, Cars H.; McGough, Bruce; … - 2019
We consider boundedly rational agents who do not plan over the infinite future but make trading plans at a finite, arbitrary horizon. We investigate the role of that horizon in the price dynamics of an asset in a Lucas tree model. We then design a laboratory experiment to test our theoretical...
Persistent link: https://www.econbiz.de/10012037335
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Monetary policy and government debt dynamics without commitment
Matveev, Dmitry - 2019
I show that maturity considerations affect the optimal conduct of monetary and fiscal policy during a period of government debt reduction. I consider a New Keynesian model and study a dynamic game of monetary and fiscal policy authorities without commitment, characterizing the incentives that...
Persistent link: https://www.econbiz.de/10012137085
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Inflation targeting and liquidity traps under endogenous credibility
Hommes, Cars H.; Lustenhouwer, Joep - 2019
Policy implications are derived for an inflation-targeting central bank, whose credibility is endogenous and depends on its past ability to achieve its targets. This is done in a New Keynesian framework with heterogeneous and boundedly rational expectations. We find that the region of allowed...
Persistent link: https://www.econbiz.de/10011978053
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What Fed funds futures tell us about monetary policy uncertainty
Fontaine, Jean-Sébastien - 2016
The uncertainty around future changes to the Federal Reserve target rate varies over time. In our results, the main driver of uncertainty is a "path" factor signaling information about future policy actions, which is filtered from federal funds futures data. The uncertainty is highest when it...
Persistent link: https://www.econbiz.de/10011576374
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Broker routing decisions in limit order markets
Cimon, David A. - 2016
The primary focus of this paper is to study conflict of interest in the brokerage market. Brokers face a conflict of interest when the commissions they receive from investors differ from the costs imposed by different trading venues. I construct a model of limit order trading in which brokers...
Persistent link: https://www.econbiz.de/10011567612