Author: Divisions of Research and Statistics and Monetary Affairs Federal Reserve Board
Publisher: CreateSpace
ISBN: 9781500338336
Category : Business & Economics
Languages : en
Pages : 54
Book Description
We study the fragility of discretionary liquidity provision by major financial intermediaries during systemic events. The laboratory of our study is the recent collapse of the auction rate securities (ARS) market. Using a comprehensive data set constructed from auction reports and intraday transactions data on municipal ARS, we present quantitative evidence that auction dealers acted at their own discretion as “market makers” before the market collapsed. We show that this discretionary liquidity provision greatly affected both net investor demand and auction clearing rates. Importantly, such discretionary liquidity provision is fragile. As auction dealers suffered losses from other financial markets and faced increasing inventory pressure, they stopped making markets. Moreover, the drop in support occurred suddenly, apparently triggered by the unexpected withdrawal of one major broker-dealer.
The Fragility of Discretionary Liquidity Provision- Lessons from the Collapse of the Auction Rate Securities Market
Author: Divisions of Research and Statistics and Monetary Affairs Federal Reserve Board
Publisher: CreateSpace
ISBN: 9781500338336
Category : Business & Economics
Languages : en
Pages : 54
Book Description
We study the fragility of discretionary liquidity provision by major financial intermediaries during systemic events. The laboratory of our study is the recent collapse of the auction rate securities (ARS) market. Using a comprehensive data set constructed from auction reports and intraday transactions data on municipal ARS, we present quantitative evidence that auction dealers acted at their own discretion as “market makers” before the market collapsed. We show that this discretionary liquidity provision greatly affected both net investor demand and auction clearing rates. Importantly, such discretionary liquidity provision is fragile. As auction dealers suffered losses from other financial markets and faced increasing inventory pressure, they stopped making markets. Moreover, the drop in support occurred suddenly, apparently triggered by the unexpected withdrawal of one major broker-dealer.
Publisher: CreateSpace
ISBN: 9781500338336
Category : Business & Economics
Languages : en
Pages : 54
Book Description
We study the fragility of discretionary liquidity provision by major financial intermediaries during systemic events. The laboratory of our study is the recent collapse of the auction rate securities (ARS) market. Using a comprehensive data set constructed from auction reports and intraday transactions data on municipal ARS, we present quantitative evidence that auction dealers acted at their own discretion as “market makers” before the market collapsed. We show that this discretionary liquidity provision greatly affected both net investor demand and auction clearing rates. Importantly, such discretionary liquidity provision is fragile. As auction dealers suffered losses from other financial markets and faced increasing inventory pressure, they stopped making markets. Moreover, the drop in support occurred suddenly, apparently triggered by the unexpected withdrawal of one major broker-dealer.
The fragility of discretionary liquidity provision
The Fragility of Discretionary Liquidity Provision
Author: Song Han
Publisher:
ISBN:
Category :
Languages : en
Pages : 56
Book Description
We study the fragility of discretionary liquidity provision by major financial intermediaries during systemic events. The laboratory of our study is the recent collapse of the auction rate securities (ARS) market. Using a comprehensive dataset constructed from auction reports and intraday transactions data on municipal ARS, we present quantitative evidence that auction dealers acted at their own discretion as “market makers” before the market collapsed. We show that this discretionary liquidity provision greatly affected both net investor demand and auction clearing rates. Importantly, such discretionary liquidity provision is fragile. As auction dealers suffered losses from other financial markets and faced increasing inventory pressure, they stopped making markets. Moreover, the drop in support occurred suddenly, apparently triggered by the unexpected withdrawal of one major broker-dealer.
Publisher:
ISBN:
Category :
Languages : en
Pages : 56
Book Description
We study the fragility of discretionary liquidity provision by major financial intermediaries during systemic events. The laboratory of our study is the recent collapse of the auction rate securities (ARS) market. Using a comprehensive dataset constructed from auction reports and intraday transactions data on municipal ARS, we present quantitative evidence that auction dealers acted at their own discretion as “market makers” before the market collapsed. We show that this discretionary liquidity provision greatly affected both net investor demand and auction clearing rates. Importantly, such discretionary liquidity provision is fragile. As auction dealers suffered losses from other financial markets and faced increasing inventory pressure, they stopped making markets. Moreover, the drop in support occurred suddenly, apparently triggered by the unexpected withdrawal of one major broker-dealer.
Liquidity Crisis, Runs, and Security Design -- Lessons from the Collapse of the Auction Rate Securities Market
Author: Song Han
Publisher:
ISBN:
Category :
Languages : en
Pages : 53
Book Description
We use the recent collapse of the ARS market to study the fragility of financial innovations and systemic risks. We find strong evidence of investor runs and coordination failure among major broker-dealers in providing liquidity support. The two forces amplified each other dynamically, resulting in the market's collapse. The likelihood of auction failure and ARS reset rates depend significantly upon both the level of maximum auction rates and the rule used to calculate them. As predicted by auction theories, there is also strong evidence of underpricing after dealers withdrew their liquidity support. Finally, we find that liquidity in the non-auction secondary market may encourage aggressive bidding in the auctions, which leads to higher interest rates. All of these revealed that the design of ARS is flawed.
Publisher:
ISBN:
Category :
Languages : en
Pages : 53
Book Description
We use the recent collapse of the ARS market to study the fragility of financial innovations and systemic risks. We find strong evidence of investor runs and coordination failure among major broker-dealers in providing liquidity support. The two forces amplified each other dynamically, resulting in the market's collapse. The likelihood of auction failure and ARS reset rates depend significantly upon both the level of maximum auction rates and the rule used to calculate them. As predicted by auction theories, there is also strong evidence of underpricing after dealers withdrew their liquidity support. Finally, we find that liquidity in the non-auction secondary market may encourage aggressive bidding in the auctions, which leads to higher interest rates. All of these revealed that the design of ARS is flawed.
Complex Systems, Multi-Sided Incentives and Risk Perception in Companies
Author: Michael I.C. Nwogugu
Publisher: Springer Nature
ISBN: 1137447044
Category : Business & Economics
Languages : en
Pages : 849
Book Description
Most research about financial stability and sustainable growth focuses on the financial sector and macroeconomics and neglects the real sector, microeconomics and psychology issues. Real-sector and financial-sectors linkages are increasing and are a foundation of economic/social/environmental/urban sustainability, given financial crises, noise, internet, “transition economics”, disintermediation, demographics and inequality around the world. Within complex systems theory framework, this book analyses some multi-sided mechanisms and risk-perception that can have symbiotic relationships with financial stability, systemic risk and/or sustainable growth. Within the context of Regret Minimization, MN-Transferable Utility and WTAL, new theories-of-the-firm are developed that consider sustainable growth, price stability, globalization, financial stability and birth-to-death evolutions of firms. This book introduces new behaviour theories pertaining to real estate and intangibles, which can affect the evolutions of risk-taking and risk perception within organizations and investment entities. The chapters address elements of the dilemma of often divergent risk perceptions of, and risk-taking by corporate executives, regulators and investment managers.
Publisher: Springer Nature
ISBN: 1137447044
Category : Business & Economics
Languages : en
Pages : 849
Book Description
Most research about financial stability and sustainable growth focuses on the financial sector and macroeconomics and neglects the real sector, microeconomics and psychology issues. Real-sector and financial-sectors linkages are increasing and are a foundation of economic/social/environmental/urban sustainability, given financial crises, noise, internet, “transition economics”, disintermediation, demographics and inequality around the world. Within complex systems theory framework, this book analyses some multi-sided mechanisms and risk-perception that can have symbiotic relationships with financial stability, systemic risk and/or sustainable growth. Within the context of Regret Minimization, MN-Transferable Utility and WTAL, new theories-of-the-firm are developed that consider sustainable growth, price stability, globalization, financial stability and birth-to-death evolutions of firms. This book introduces new behaviour theories pertaining to real estate and intangibles, which can affect the evolutions of risk-taking and risk perception within organizations and investment entities. The chapters address elements of the dilemma of often divergent risk perceptions of, and risk-taking by corporate executives, regulators and investment managers.
Liquidity Crisis, Runs, and Security Design
Author: Song Han
Publisher:
ISBN:
Category :
Languages : en
Pages : 58
Book Description
In this paper, we use the recent collapse of the ARS market as the laboratory to study issues on the fragility of financial innovations and systemic risks. We find strong evidence of investor runs for liquidity - partly caused by a self-fulfilling panic - and coordination failures among major broker-dealers in providing liquidity support. The two forces amplify each other dynamically, resulting in the market collapse. We also find that the likelihood of auction failures and ARS reset rates depend significantly on both the rule and the level of maximum auction rates; that, as predicted by auction theories, there is also strong evidence for underpricing after dealers withdrew their liquidity supports; and that liquidity in the non-auction secondary market may encourage aggressive bidding that increases the reset rates.
Publisher:
ISBN:
Category :
Languages : en
Pages : 58
Book Description
In this paper, we use the recent collapse of the ARS market as the laboratory to study issues on the fragility of financial innovations and systemic risks. We find strong evidence of investor runs for liquidity - partly caused by a self-fulfilling panic - and coordination failures among major broker-dealers in providing liquidity support. The two forces amplify each other dynamically, resulting in the market collapse. We also find that the likelihood of auction failures and ARS reset rates depend significantly on both the rule and the level of maximum auction rates; that, as predicted by auction theories, there is also strong evidence for underpricing after dealers withdrew their liquidity supports; and that liquidity in the non-auction secondary market may encourage aggressive bidding that increases the reset rates.
Earnings Management, Fintech-Driven Incentives and Sustainable Growth
Author: Michael I. C. Nwogugu
Publisher: Routledge
ISBN: 1317146557
Category : Business & Economics
Languages : en
Pages : 275
Book Description
Traditional research about Financial Stability and Sustainable Growth typically omits Earnings Management (as a broad class of misconduct), Complex Systems Theory, Mechanism Design Theory, Public Health, psychology issues, and the externalities and psychological effects of Fintech. Inequality, Environmental Pollution, Earnings Management opportunities, the varieties of complex Financial Instruments, Fintech, Regulatory Fragmentation, Regulatory Capture and real-financial sector-linkages are growing around the world, and these factors can have symbiotic relationships. Within Complex System theory framework, this book analyzes these foregoing issues, and introduces new behaviour theories, Enforcement Dichotomies, and critiques of models, regulations and theories in several dimensions. The issues analyzed can affect markets, and evolutions of systems, decision-making, "nternal Markets and risk-perception within government regulators, operating companies and investment entities, and thus they have Public Policy implications. The legal analysis uses applicable US case-law and statutes (which have been copied by many countries, and are similar to those of many common-law countries). Using Qualitative Reasoning, Capital Dynamics Theory (a new approach introduced in this book), Critical Theory and elements of Mechanism Design Theory, the book aims to enhance cross-disciplinary analysis of the above-mentioned issues; and to help researchers build better systems/Artificial-Intelligence/mathematical models in Financial Stability, Portfolio Management, Policy-Analysis, Asset Pricing, Contract Theory, Enforcement Theory and Fraud Detection. The primary audience for this book consists of university Professors, PHD students and PHD degree-holders (in industries, government agencies, financial services companies and research institutes). The book can be used as a primary or supplementary textbook for graduate courses in Regulation; Capital Markets; Law & Economics, International Political Economy and or Mechanism Design (Applied Math, Operations Research, Computer Science or Finance).
Publisher: Routledge
ISBN: 1317146557
Category : Business & Economics
Languages : en
Pages : 275
Book Description
Traditional research about Financial Stability and Sustainable Growth typically omits Earnings Management (as a broad class of misconduct), Complex Systems Theory, Mechanism Design Theory, Public Health, psychology issues, and the externalities and psychological effects of Fintech. Inequality, Environmental Pollution, Earnings Management opportunities, the varieties of complex Financial Instruments, Fintech, Regulatory Fragmentation, Regulatory Capture and real-financial sector-linkages are growing around the world, and these factors can have symbiotic relationships. Within Complex System theory framework, this book analyzes these foregoing issues, and introduces new behaviour theories, Enforcement Dichotomies, and critiques of models, regulations and theories in several dimensions. The issues analyzed can affect markets, and evolutions of systems, decision-making, "nternal Markets and risk-perception within government regulators, operating companies and investment entities, and thus they have Public Policy implications. The legal analysis uses applicable US case-law and statutes (which have been copied by many countries, and are similar to those of many common-law countries). Using Qualitative Reasoning, Capital Dynamics Theory (a new approach introduced in this book), Critical Theory and elements of Mechanism Design Theory, the book aims to enhance cross-disciplinary analysis of the above-mentioned issues; and to help researchers build better systems/Artificial-Intelligence/mathematical models in Financial Stability, Portfolio Management, Policy-Analysis, Asset Pricing, Contract Theory, Enforcement Theory and Fraud Detection. The primary audience for this book consists of university Professors, PHD students and PHD degree-holders (in industries, government agencies, financial services companies and research institutes). The book can be used as a primary or supplementary textbook for graduate courses in Regulation; Capital Markets; Law & Economics, International Political Economy and or Mechanism Design (Applied Math, Operations Research, Computer Science or Finance).
Measuring Wealth and Financial Intermediation and Their Links to the Real Economy
Author: Charles R. Hulten
Publisher: University of Chicago Press
ISBN: 022620426X
Category : Business & Economics
Languages : en
Pages : 398
Book Description
More than half a decade has passed since the bursting of the housing bubble and the collapse of Lehman Brothers. In retrospect, what is surprising is that these events and their consequences came as such a surprise. What was it that prevented most of the world from recognizing the impending crisis and, looking ahead, what needs to be done to prevent something similar? Measuring Wealth and Financial Intermediation and Their Links to the Real Economy identifies measurement problems associated with the financial crisis and improvements in measurement that may prevent future crises, taking account of the dynamism of the financial marketplace in which measures that once worked well become misleading. In addition to advances in measuring financial activity, the contributors also investigate the effects of the crisis on households and nonfinancial businesses. They show that households’ experiences varied greatly and some even experienced gains in wealth, while nonfinancial businesses’ lack of access to credit in the recession may have been a more important factor than the effects of policies stimulating demand.
Publisher: University of Chicago Press
ISBN: 022620426X
Category : Business & Economics
Languages : en
Pages : 398
Book Description
More than half a decade has passed since the bursting of the housing bubble and the collapse of Lehman Brothers. In retrospect, what is surprising is that these events and their consequences came as such a surprise. What was it that prevented most of the world from recognizing the impending crisis and, looking ahead, what needs to be done to prevent something similar? Measuring Wealth and Financial Intermediation and Their Links to the Real Economy identifies measurement problems associated with the financial crisis and improvements in measurement that may prevent future crises, taking account of the dynamism of the financial marketplace in which measures that once worked well become misleading. In addition to advances in measuring financial activity, the contributors also investigate the effects of the crisis on households and nonfinancial businesses. They show that households’ experiences varied greatly and some even experienced gains in wealth, while nonfinancial businesses’ lack of access to credit in the recession may have been a more important factor than the effects of policies stimulating demand.
Measuring Wealth and Financial Intermediation and Their Links to the Real Economy
Author: Marshall B. Reinsdorf
Publisher:
ISBN:
Category : Global Financial Crisis, 2008-2009
Languages : en
Pages : 408
Book Description
Measuring Wealth and Financial Intermediation and Their Links to the Real Economy identifies measurement problems associated with the financial crisis and improvements in measurement that may prevent future crises, taking account of the dynamism of the financial marketplace in which measures that once worked well become misleading. In addition to advances in measuring financial activity, the contributors also investigate the effects of the crisis on households and nonfinancial businesses. They show that households’ experiences varied greatly and some even experienced gains in wealth, while nonfinancial businesses’ lack of access to credit in the recession may have been a more important factor than the effects of policies stimulating demand.
Publisher:
ISBN:
Category : Global Financial Crisis, 2008-2009
Languages : en
Pages : 408
Book Description
Measuring Wealth and Financial Intermediation and Their Links to the Real Economy identifies measurement problems associated with the financial crisis and improvements in measurement that may prevent future crises, taking account of the dynamism of the financial marketplace in which measures that once worked well become misleading. In addition to advances in measuring financial activity, the contributors also investigate the effects of the crisis on households and nonfinancial businesses. They show that households’ experiences varied greatly and some even experienced gains in wealth, while nonfinancial businesses’ lack of access to credit in the recession may have been a more important factor than the effects of policies stimulating demand.
Liquidity, Runs, and Security Design
Author: Song Han
Publisher:
ISBN:
Category :
Languages : en
Pages : 52
Book Description
In this paper, we use the recent collapse of the ARS market as the laboratory to study issues on the fragility of financial innovations and systemic risks. We find strong evidence of investor runs for liquidity - partly caused by a self-fulfilling panic - and coordination failures among major broker-dealers in providing liquidity support. The two forces amplify each other dynamically, resulting in the market collapse. We also find that the likelihood of auction failures and ARS reset rates depend significantly on both the rule and the level of maximum auction rates; that, as predicted by auction theories, there is also strong evidence for underpricing after dealers withdrew their liquidity supports; and that inter-auction secondary market liquidity may encourage aggressive bidding that increases the reset rates.
Publisher:
ISBN:
Category :
Languages : en
Pages : 52
Book Description
In this paper, we use the recent collapse of the ARS market as the laboratory to study issues on the fragility of financial innovations and systemic risks. We find strong evidence of investor runs for liquidity - partly caused by a self-fulfilling panic - and coordination failures among major broker-dealers in providing liquidity support. The two forces amplify each other dynamically, resulting in the market collapse. We also find that the likelihood of auction failures and ARS reset rates depend significantly on both the rule and the level of maximum auction rates; that, as predicted by auction theories, there is also strong evidence for underpricing after dealers withdrew their liquidity supports; and that inter-auction secondary market liquidity may encourage aggressive bidding that increases the reset rates.