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on Market Microstructure |
| By: | Kargar, Mahyar; Lester, Benjamin; Lindsay, David; Liu, Shuo; Weill, Pierre-Olivier; Zuniga, Diego |
| Abstract: | We study liquidity conditions in the corporate bond market during the COVID-19 pandemic, and the effects of the unprecedented interventions by the Federal Reserve. We find that, at the height of the crisis, liquidity conditions deteriorated substantially, as dealers appeared unwilling to absorb corporate debt onto their balance sheets. In particular, we document that the cost of risky-principal trades increased by a factor of five, forcing traders to shift to slower, agency trades. The announcements of the Federal Reserve's interventions coincided with substantial improvements in trading conditions: dealers began to "lean against the wind" and bid-ask spreads declined. To study the causal impact of the interventions on market liquidity, we exploit eligibility requirements for bonds to be purchased through the Fed's corporate credit facilities. We find that, immediately after the facilities were announced, trading costs for eligible bonds improved significantly while those for ineligible bonds did not. Later, when the facilities were expanded, liquidity conditions improved for a wide range of bonds. We develop a simple theoretical framework to interpret our findings, and to estimate how the COVID-19 shock and subsequent interventions affected consumer surplus and dealer profits. |
| Keywords: | corporate bonds; COVID-19; intermediation; liquidity; SMCCF |
| JEL: | G12 G14 G21 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15231&r= |
| By: | Zhihan Zhou; Liqian Ma; Han Liu |
| Abstract: | In this paper, we introduce an event-driven trading strategy that predicts stock movements by detecting corporate events from news articles. Unlike existing models that utilize textual features (e.g., bag-of-words) and sentiments to directly make stock predictions, we consider corporate events as the driving force behind stock movements and aim to profit from the temporary stock mispricing that may occur when corporate events take place. The core of the proposed strategy is a bi-level event detection model. The low-level event detector identifies events' existences from each token, while the high-level event detector incorporates the entire article's representation and the low-level detected results to discover events at the article-level. We also develop an elaborately-annotated dataset EDT for corporate event detection and news-based stock prediction benchmark. EDT includes 9721 news articles with token-level event labels as well as 303893 news articles with minute-level timestamps and comprehensive stock price labels. Experiments on EDT indicate that the proposed strategy outperforms all the baselines in winning rate, excess returns over the market, and the average return on each transaction. |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2105.12825&r= |
| By: | Alex Aronovich; Dobrislav Dobrev; Andrew C. Meldrum |
| Abstract: | The Treasury market flash event of February 25, 2021 underscores the pivotal role of high-speed liquidity provision in the most liquid electronic parts of the Treasury market. We find evidence that the sharp drop in prices that day was accompanied by a sudden drop in market depth and a brief deterioration in high-speed liquidity provision amid elevated transaction volumes, albeit to a much lesser extent than during the episode of severe illiquidity in March 2020. Similar to some previous episodes accompanied by moderately elevated economic and financial market uncertainty, market depth has recovered steadily since February 25 at a pace comparable to that observed following other such episodes, while high-speed liquidity provision appears to have rebounded fairly quickly. That said, market depth has taken over a month to partially recover, which suggests that Treasury market liquidity has been more heavily reliant on high-speed replenishment to meet trading demand and may remain fragile. |
| Date: | 2021–05–14 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfn:2021-05-14&r= |
| By: | Sam Schulhofer-Wohl |
| Abstract: | The architecture of securities clearing and settlement in the United States creates an externality: Investors do not always bear the full cost of settlement risk for their trades and can impose some of these costs on the brokerages where they are customers. When markets are volatile and settlement risk is high, this externality can result in too much or too little trading relative to the efficient level, because investors ignore trading costs but brokerages may refuse to allow investors to trade. Both effects were evident during the recent volatility in GameStop stock. Alternative approaches for clearing customer trades that are used in derivatives markets would eliminate the externality. I examine the potential benefits and costs of different approaches for clearing customer securities trades as well as implications for the U.S. Treasury market, where there have been calls to investigate the costs and benefits of expanded clearing of customer trades, and the relationship to faster equities settlement. |
| Keywords: | central counterparties; securities settlement; externalities |
| JEL: | D62 G23 G24 K22 |
| Date: | 2021–03–19 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhpd:91897&r= |