Work in Progress

Outages in Sovereign Bond Markets

• • We exploit outages on sovereign bond markets as natural experiments. First, we show that when the euro area futures market goes down, trading activity on the cash market declines, liquidity evaporates, and transaction prices in risk-free bonds deviate strongly from fundamental values. Second, we trace back these macro-level outcomes to the micro-level, showing that particularly dealers withdraw from the cash market when the futures market goes down. While their remaining trades remain fairly priced, dealer's capacity to intermediate bond trades on the cash market is reduced, forcing clients to trade directly with each other, leading to large pricing errors. Third, we document how unique these outage effects are. Disruptions on cash trading platforms barely affect the futures market, suggesting that price formation and liquidity provision is a one-way street. Similarly, outages on the euro area futures market barely affect US bond futures, and vice versa, in stark contrast to the significant price spillovers between US and euro area bonds. Our results highlight the trade-offs between a (de)centralized market structure, they corroborate cross-asset learning models to explain the link between liquidity and arbitrage, and they confirm that financial intermediaries impose important limits to arbitrage.

  • with Caspar Helmus

  • presented at ESMA, Finanzagentur, ECB's MOC and MPC, 12th Bundesbank Term Structure Workshop, 12th Annual EBA Research Conference

  • to be presented at 2024 WEAI conference in Seattle

  • Slides

  • ECB working paper coming soon

Publications

What Moves Markets?

• • with Maik Schmeling

  • SSRN link, Research Brief, Slides (ECB Seminar Series on Monetary Policy), mentioned in Bundesbank president Joachim Nagel's speech

  • Event Database (csv) and Overview (html)

  • forthcoming at Journal of Monetary Economics

The Puzzling Effects of Monetary Policy in VARs: Invalid Identification or Missing Information?

• • Journal of Applied Econometrics, 2019, 34(1), pp. 18–25

  • Replication Files and Online Appendix, Slides

The Response of Asset Prices to Monetary Policy Shocks: Stronger Than Thought

• • Journal of Applied Econometrics, 2019, 34(5), pp. 661-672

  • with Lucia Alessi, Replication Files, February 2019 version (PDF)

Information Effects of Euro Area Monetary Policy

• • Economics Letters, 2022, Volume 216 (110570)

  • April 2022 version (PDF), Appendix (PDF), Bundesbank Research Brief, Slides

  • Surprise Series (xlsx) (updated till June 2023)