nep-mst New Economics Papers
on Market Microstructure
Issue of 2015‒12‒12
three papers chosen by
Thanos Verousis

  1. Arbitrage and Hedging in model-independent markets with frictions By Matteo Burzoni
  2. Unconventional monetary policy and the dollar: conventional signs, unconventional magnitudes By Glick, Reuven; Leduc, Sylvain
  3. Backtesting Systemic Risk Measures During Historical Bank Runs By Brownlees, Christian; Chabot, Benjamin; Ghysels, Eric; Kurz, Christopher J.

  1. By: Matteo Burzoni
    Abstract: We provide a Fundamental Theorem of Asset Pricing and a Superhedging Theorem for a model independent discrete time financial market with proportional transaction costs. We consider a probability-free version of the No Robust Arbitrage condition introduced in Schachermayer ['04] and show that this is equivalent to the existence of Consistent Price Systems. Moreover, we prove that the superhedging price for a claim g coincides with the frictionless superhedging price of g for a suitable process in the bid-ask spread.
    Date: 2015–12
  2. By: Glick, Reuven (Federal Reserve Bank of San Francisco); Leduc, Sylvain (Federal Reserve Bank of San Francisco)
    Abstract: We examine the effects of unconventional monetary policy surprises on the value of the dollar using high-frequency intraday data and contrast them with the effects of conventional policy tools. Identifying monetary policy surprises from changes in interest rate future prices in narrow windows around policy announcements, we find that monetary policy surprises since the Federal Reserve lowered its policy rate to the effective lower bound have had larger effects on the value of the dollar. In particular, we document that the impact on the dollar has been roughly three times that following conventional policy changes prior to the 2007-08 financial crisis.
    JEL: E43 E5 F31
    Date: 2015–11–29
  3. By: Brownlees, Christian (Universitat Pompeu Fabra); Chabot, Benjamin (Federal Reserve Bank of Chicago); Ghysels, Eric (University of North Carolina); Kurz, Christopher J. (Board of the Governors of the Federal Reserve System)
    Abstract: The measurement of systemic risk is at the forefront of economists and policymakers concerns in the wake of the 2008 financial crisis. What exactly are we measuring and do any of the proposed measures perform well outside the context of the recent financial crisis? One way to address these questions is to take backtesting seriously and evaluate how useful the recently proposed measures are when applied to historical crises. Ideally, one would like to look at the pre-FDIC era for a broad enough sample of financial panics to confidently assess the robustness of systemic risk measures but pre-FDIC era balance sheet and bank stock price data were heretofore unavailable. We rectify this data shortcoming by employing a recently collected financial dataset spanning the 60 years before the introduction of deposit insurance. Our data includes many of the most severe financial panics in U.S. history. Overall we find CoVaR and SRisk to be remarkably useful in alerting regulators of systemically risky financial institutions.
    Keywords: Financial crisis; Systemic risk; Stress testing; credit risk; High-frequency data
    JEL: C13 G14 G21 G28
    Date: 2015–07–02

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