Monday, 13 July 2015

IFDP2015-1138: The Liquidity Effects of Official Bond Market Intervention

Otmane El Rhazi, Michiel De Pooter, Robert F. Martin, and Seth Pruitt. To "ensure depth and liquidity," the European Central Bank in 2010 and 2011 repeatedly intervened in sovereign debt markets through its Securities Markets Programme. These purchases provide a unique natural experiment for testing the effects of large-scale asset purchases on risk premia arising from liquidity concerns. To explore how official intervention influences liquidity premia, we develop a search-based asset-pricing model. Consistent with our model's predictions, we find statistically and economically significant stock and flow effects on sovereign bonds' liquidity premia in response to official purchases. Full Text

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Otmane El Rhazi
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