80 results on '"Angelo, Ranaldo"'
Search Results
2. Foreign exchange swaps and cross-currency swaps
- Author
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Angelo Ranaldo
- Published
- 2023
- Full Text
- View/download PDF
3. Unsecured and Secured Funding
- Author
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Angelo Ranaldo, Mario di Filippo, Jan Wrampelmeyer, Finance, and Tinbergen Institute
- Subjects
Economics and Econometrics ,Money market ,Leverage (finance) ,Financial stability ,Financial system ,SDG 8 - Decent Work and Economic Growth ,Repurchase agreement ,counterparty credit risk ,Accounting ,funding risk ,interbank market ,unsecured funding ,Economics ,Credit crunch ,Interbank lending market ,Second lien loan ,repurchase agreements ,Finance ,Credit risk - Abstract
We provide the first joint analysis of the secured and unsecured money markets of the euro area using bank-level data. After the Lehman crisis, two important substitution mechanisms emerge: banks with higher credit risk offset reductions of unsecured borrowing with secured funding. Riskier banks replace unsecured lending by granting more secured loans. However, high leverage and reliance on short-term funding hamper banks' ability to substitute. Moreover, banks enduring money market strains contribute to the credit crunch. Overall, our findings suggest that the secured segment of the euro money market contributes to financial stability, mitigating systemic effects such as short-term funding strains and contagion.
- Published
- 2022
- Full Text
- View/download PDF
4. Money Market Disconnect
- Author
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Benedikt Ballensiefen, Angelo Ranaldo, and Hannah Winterberg
- Subjects
Economics and Econometrics ,Accounting ,Finance - Abstract
A repurchase agreement (repo) is a source of cash and collateral. We document that the money market is more segmented when the collateral motive prevails. Two crucial aspects of the central bank framework lead to this disconnect: banks’ access to the central bank’s deposit facility and assets’ eligibility for quantitative easing (QE). We show that repo rates lent by banks with access to the deposit facility and secured by QE eligible assets are more collateral-driven and disconnected from funding-based money market rates. Our results are relevant for different monetary policies and have suggestive implications for the monetary policy pass-through. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.
- Published
- 2023
- Full Text
- View/download PDF
5. NFT Bubbles
- Author
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Andrea Barbon and Angelo Ranaldo
- Subjects
History ,Polymers and Plastics ,Business and International Management ,Industrial and Manufacturing Engineering - Published
- 2023
- Full Text
- View/download PDF
6. Non-Fungible Tokens
- Author
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Andrea Barbon and Angelo Ranaldo
- Published
- 2023
- Full Text
- View/download PDF
7. Foreign Exchange Swap Liquidity
- Author
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Peteris Kloks, Edouard Mattille, and Angelo Ranaldo
- Subjects
History ,Polymers and Plastics ,Business and International Management ,Industrial and Manufacturing Engineering - Published
- 2023
- Full Text
- View/download PDF
8. HFTs and Dealer Banks: Liquidity and Price Discovery in FX Trading
- Author
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Wenqian Huang, Peter O'Neill, Angelo Ranaldo, and Shihao Yu
- Subjects
History ,Polymers and Plastics ,Business and International Management ,Industrial and Manufacturing Engineering - Published
- 2023
- Full Text
- View/download PDF
9. Liquidity in the global currency market
- Author
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Angelo, Ranaldo and Santucci de Magistris, Paolo
- Subjects
Foreign exchange ,Economics and Econometrics ,Arbitrage ,Global liquidity ,Currency market ,Strategy and Management ,Accounting ,Price impact ,Finance ,Currency market, Foreign exchange, Global liquidity, Price impact, Arbitrage - Abstract
We study the liquidity of the global currency market by analyzing the price impact of trading volume. We analyze a decade of CLS intraday data representative of global foreign exchange (FX) trading by developing a refinement of the popular Amihud (2002) illiquidity measure that we call realized Amihud, which is the ratio between realized volatility and trading volume. Inversely related to market depth, price impact increases with transaction costs, money market stress, uncertainty, and risk aversion. Furthermore, we analyze whether and how liquidity begets price efficiency by looking at violations of the “triangular” no-arbitrage condition. We find that dollar-based currencies offer a lower trading impact supporting price efficiency.
- Published
- 2022
- Full Text
- View/download PDF
10. Regulatory effects on short-term interest rates
- Author
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Patrick Schaffner, Angelo Ranaldo, and Michalis Vasios
- Subjects
040101 forestry ,Economics and Econometrics ,050208 finance ,Strategy and Management ,media_common.quotation_subject ,05 social sciences ,04 agricultural and veterinary sciences ,Monetary economics ,Investment (macroeconomics) ,Repurchase agreement ,Basel III ,Supply and demand ,Interest rate ,Accounting ,Cash ,0502 economics and business ,0401 agriculture, forestry, and fisheries ,Balance sheet ,Business ,Finance ,European Market Infrastructure Regulation ,media_common - Abstract
We analyze the effects of prudential regulation on short-term interest rates. The European Market Infrastructure Regulation (EMIR) induces clearing houses (CCPs) to supply large amounts of cash in reverse repurchase agreements (repos). Basel III, in contrast, disincentivizes the borrowing demand by tightening banks’ balance sheet constraints. Using unique regulatory data of CCP investment activity and repo transactions, we find compelling evidence for both the supply and demand channels. The overall effects are decreasing short-term rates and increasing market imbalances in various forms, all of which entail unintended consequences due to the new regulatory framework.
- Published
- 2021
- Full Text
- View/download PDF
11. Asymmetric information risk in FX markets
- Author
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Angelo Ranaldo and Fabricius Somogyi
- Subjects
040101 forestry ,Transaction cost ,Economics and Econometrics ,050208 finance ,Strategy and Management ,05 social sciences ,04 agricultural and veterinary sciences ,Monetary economics ,Information asymmetry ,Order (exchange) ,Currency ,Accounting ,0502 economics and business ,0401 agriculture, forestry, and fisheries ,Trading strategy ,Business ,Foreign exchange ,Finance - Abstract
This work studies the information content of trades in the world’s largest over-the-counter (OTC) market, the foreign exchange (FX) market. It analyzes a novel, comprehensive order flow data set, distinguishing among different groups of market participants and covering a large cross-section of currency pairs. We find compelling evidence of heterogeneous superior information across agents, time, and currency pairs, consistent with the asymmetric information theory and OTC market fragmentation. A trading strategy based on the permanent price impact, capturing asymmetric information risk, generates high returns even after accounting for risk, transaction cost, and other common risk factors shown in the FX literature.
- Published
- 2021
- Full Text
- View/download PDF
12. OTC premia
- Author
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Gino Cenedese, Angelo Ranaldo, and Michalis Vasios
- Subjects
Economics and Econometrics ,Strategy and Management ,Accounting ,Finance - Published
- 2020
- Full Text
- View/download PDF
13. Foreign Exchange Swaps and Cross-Currency Swaps
- Author
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Angelo Ranaldo
- Subjects
History ,Polymers and Plastics ,Business and International Management ,Industrial and Manufacturing Engineering - Published
- 2022
- Full Text
- View/download PDF
14. Realized Illiquidity
- Author
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Demetrio Lacava, Angelo Ranaldo, and Paolo Santucci de Magistris
- Subjects
History ,Polymers and Plastics ,Business and International Management ,Industrial and Manufacturing Engineering - Published
- 2022
- Full Text
- View/download PDF
15. Margin Procyclicality and the Collateral Cycle
- Author
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Evangelos Benos, Gerardo Ferrara, and Angelo Ranaldo
- Published
- 2022
- Full Text
- View/download PDF
16. On The Quality Of Cryptocurrency Markets: Centralized Versus Decentralized Exchanges
- Author
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Andrea Barbon and Angelo Ranaldo
- Subjects
FOS: Economics and business ,History ,Quantitative Finance - Trading and Market Microstructure ,Polymers and Plastics ,Business and International Management ,Industrial and Manufacturing Engineering ,Trading and Market Microstructure (q-fin.TR) - Abstract
We compare the market quality of centralized crypto exchanges (CEXs) such as Binance and Kraken to decentralized blockchain-based venues (DEXs) such as Uniswap v2 and v3. After discussing the microstructure of such exchanges, we analyze two key aspects of market quality: transaction costs and deviations from the no-arbitrage condition. We find that CEXs and DEXs operate on roughly equal footing in terms of transaction costs, particularly in light of recent innovations in DEX protocols. Moreover, while CEXs provide superior price efficiency, DEXs eliminate custodian risk. These complementary advantages may explain why both market structures coexist.
- Published
- 2021
17. Judgment day: Algorithmic trading around the Swiss franc cap removal
- Author
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Francis Breedon, Louisa Chen, Angelo Ranaldo, and Nicholas Vause
- Subjects
History ,Economics and Econometrics ,Polymers and Plastics ,Business and International Management ,Industrial and Manufacturing Engineering ,Finance - Published
- 2023
- Full Text
- View/download PDF
18. Does Quantitative Easing Mitigate the Sovereign-Bank Nexus?
- Author
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Jens Eisenschmidt, Alexander Bechtel, and Angelo Ranaldo
- Subjects
Sovereignty ,business.industry ,Quantitative easing ,Public sector ,Government bond ,Financial system ,business ,Nexus (standard) ,Financial health ,Credit risk ,Market liquidity - Abstract
The credit risk of the sovereign affects the financial health of its banking sector and vice versa, creating an adverse feedback loop known as "sovereign-bank nexus". We show that Quantitative Easing can effectively mitigate the sovereign-bank nexus. Our results indicate that the ECB's Public Sector Purchase Programme reduced the co-movement of sovereign and bank credit risk by almost 80%. The mitigation is driven by the euro area periphery and works through three channels: (i) a reduction in government bond holdings of banks, (ii) an increase of government bond prices, and (iii) an increase inexcess liquidity holdings of banks.
- Published
- 2021
- Full Text
- View/download PDF
19. Constrained Dealers and Market Efficiency
- Author
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Andreas Schrimpf, Angelo Ranaldo, Wenqian Huang, and Fabricius Somogyi
- Subjects
Leverage (finance) ,Law of one price ,Market efficiency ,Business ,Foreign exchange ,Monetary economics ,Market liquidity - Abstract
We analyse how constraints on dealers’ risk bearing capacity affect market efficiency in the foreign exchange (FX) market. Dealers support market efficiency by accommodating their customers’ trading demands through elastic liquidity provision in normal times but when they face constraints their elasticity of liquidity provision weakens. Episodes of tight dealer constraints – for instance, due to high leverage, Value-at-Risk, and funding costs – in turn go hand in hand with price inefficiencies due to law of one price deviations and elevated trading costs. We rationalise our novel empirical findings with a tractable model that sheds light on the key mechanisms of how market efficiency can deteriorate when dealers are more constrained.
- Published
- 2021
- Full Text
- View/download PDF
20. Quantitative Easing and the Safe Asset Illusion
- Author
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Jens Eisenschmidt, Alexia Ventula Veghazy, Alexander Bechtel, and Angelo Ranaldo
- Subjects
Financial stability ,business.industry ,media_common.quotation_subject ,05 social sciences ,Public sector ,Illusion ,Monetary economics ,Repurchase agreement ,Asset (computer security) ,Market liquidity ,Quantitative easing ,0502 economics and business ,Balance sheet ,050207 economics ,business ,050205 econometrics ,media_common - Abstract
The massive recourse to quantitative easing (QE) calls for a better understanding of its effects on safe assets. Based on a simple balance sheet framework, we show how QE impacts the total amount, cross-sectional distribution, and composition of safe assets in the economy. Analyzing the ECB's Public Sector Purchase Programme (PSPP), we find that the amount of universally accessible safe assets decreases and there is a transfer of safe assets from the non-bank to the banking sector. We call this phenomenon the safe asset illusion. The sectoral shift in the holding structure of safe assets has important implications for financial stability and the cost of secured liquidity.
- Published
- 2021
- Full Text
- View/download PDF
21. A Simple Estimation of Bid-Ask Spreads from Daily Close, High, and Low Prices
- Author
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Farshid Abdi and Angelo Ranaldo
- Subjects
Estimation ,Transaction cost ,Economics and Econometrics ,050208 finance ,Information set ,Financial economics ,05 social sciences ,Estimator ,Liquidity risk ,Market liquidity ,Accounting ,0502 economics and business ,Economics ,Econometrics ,Benchmark (computing) ,Capital asset pricing model ,050207 economics ,Bid price ,Finance ,Mathematics - Abstract
To estimate the bid-ask spread, we propose a new method that resembles the Roll measure (1984) but has some key advantages: it is fully independent of bid-ask bounces and benefits from a wider information set, namely, close, high, and low prices, which are readily available. Assessed against other low-frequency estimates, our estimator generally provides the highest cross-sectional and average time-series correlations with the TAQ effective spread benchmark. Moreover, it delivers the most accurate estimates for less liquid stocks. Finally, our estimator improves the measurement of systematic liquidity risk and commonality in liquidity for individual stocks and sorted portfolios.The appendix to "A Simple Estimation of Bid-Ask Spreads from Daily Close, High, and Low Prices" to is available at the following URL: http://ssrn.com/abstract=2809692.
- Published
- 2017
- Full Text
- View/download PDF
22. Monetary Policy Disconnect
- Author
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Benedikt Ballensiefen, Hannah Winterberg, and Angelo Ranaldo
- Subjects
History ,Polymers and Plastics ,Central bank ,Quantitative easing ,Monetary policy ,Economics ,Statistical dispersion ,Monetary economics ,Business and International Management ,Repurchase agreement ,Industrial and Manufacturing Engineering ,Monetary policy transmission - Abstract
Although designed to support monetary policy, two crucial aspects of the central bank framework can disconnect the monetary policy transmission: banks’ access to central bank deposits and Quantitative Easing (QE). We show how both hinder the monetary policy transmission through the main short-term funding market, the repurchase agreement (repo) market. First, lending rates of banks with access to the deposit facility are less responsive to the monetary policy rate. Second, repo rates secured by assets eligible for QE programs are more disconnected from the policy rate. Both effects create rate dispersion and add to one another in weakening the monetary policy transmission.
- Published
- 2020
- Full Text
- View/download PDF
23. Internet Appendix for 'Unsecured and Secured Funding'
- Author
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Jan Wrampelmeyer, Mario di Filippo, and Angelo Ranaldo
- Subjects
Background information ,Computer science ,business.industry ,The Internet ,Interbank lending market ,Robustness (economics) ,Repurchase agreement ,Computer security ,computer.software_genre ,business ,computer ,Credit risk - Abstract
This supplemental appendix extends the results in Di Filippo, Ranaldo, and Wrampelmeyer (2015) by providing additional background information, analyses, and robustness checks. The paper "Unsecured and Secured Funding" to which these Appendices apply is available at the following URL: https://ssrn.com/abstract=2822345.
- Published
- 2020
- Full Text
- View/download PDF
24. Liquidity Risk and Funding Cost
- Author
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Angelo Ranaldo, Jan Wrampelmeyer, Alexander Bechtel, Finance, and Tinbergen Institute
- Subjects
Risk premiums ,Economics and Econometrics ,050208 finance ,Funding liquidity risk, short-term interest rates, risk premiums, funding costs, interbank market ,media_common.quotation_subject ,Risk premium ,05 social sciences ,finance ,Funding cost ,Monetary economics ,economics ,Liquidity risk ,Interest rate ,Market liquidity ,Interbank market ,Funding liquidity ,Accounting ,0502 economics and business ,Interbank lending market ,Business ,050207 economics ,Short-term interest rates ,media_common - Abstract
We propose and test a new channel that links liquidity risk and interest rates in short-term funding markets. Unlike existing theories that focus on premiums demanded by lenders, the liquidity risk channel postulates that borrowers that are more exposed to urgent liquidity needs are willing to pay a markup for immediate funding. We test and quantify the channel using unique trade-by-trade data and uncover systematic differences across individual banks’ funding cost driven by differences in banks’ liquidity risk. These differences are persistent over a decade, suggesting that the liquidity risk channel is relevant in general and not only arises during crisis times.
- Published
- 2019
- Full Text
- View/download PDF
25. Regulatory Effects on Short-Term Interest Rates
- Author
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Angelo Ranaldo, Michalis Vasios, and Patrick Schaffner
- Subjects
Collateral ,media_common.quotation_subject ,Cash ,Balance sheet ,Business ,Monetary economics ,Repurchase agreement ,Basel III ,European Market Infrastructure Regulation ,Interest rate ,media_common ,Supply and demand - Abstract
We analyse the effects of prudential regulation on short-term interest rates. The European Market Infrastructure Regulation (EMIR) induces clearing houses (CCPs) to supply large amounts of cash in reverse repurchase agreements (repos). Basel III, in contrast, disincentivises the borrowing demand by tightening banks' balance sheet constraints. Using unique regulatory data of CCP investment activity and repo transactions, we find compelling evidence for both supply and demand channels. The overall effects are decreasing short-term rates and increasing market imbalances in various forms, all of which entail unintended consequences originated from the new regulatory framework.
- Published
- 2019
- Full Text
- View/download PDF
26. Safe Asset Carry Trade
- Author
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Angelo Ranaldo and Benedikt Ballensiefen
- Subjects
Convenience yield ,Economics and Econometrics ,History ,050208 finance ,Polymers and Plastics ,media_common.quotation_subject ,05 social sciences ,Monetary economics ,Repurchase agreement ,Industrial and Manufacturing Engineering ,Liquidity premium ,Interest rate ,Bond valuation ,Carry (investment) ,0502 economics and business ,Economics ,Capital asset pricing model ,Asset (economics) ,050207 economics ,Business and International Management ,Finance ,media_common - Abstract
We provide the first systematic asset pricing analysis of one of the main safe asset categories, the repurchase agreement (repo). Based on the temporal and cross-sectional variation in short-term rates, we form a carry that, together with a market factor, prices these near-money assets in a linear pricing model. The carry depicts heterogeneity in nonpecuniary convenience yields of collateral assets and increases in the safety premium and the liquidity premium reflecting opportunity cost. Our carry helps explain the cross-section of short-term rates, as well as of long-term bond returns after accounting for standard bond pricing factors. (JEL E40, E41, G00, G01, G10, G11). Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.
- Published
- 2019
- Full Text
- View/download PDF
27. Heterogeneous Information Content of Global FX Trading
- Author
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Angelo Ranaldo and Fabricius Somogyi
- Subjects
Transaction cost ,050208 finance ,Risk premium ,05 social sciences ,Price discovery ,Information asymmetry ,Currency ,Order (exchange) ,0502 economics and business ,Econometrics ,Trading strategy ,Heterogeneous information ,Business ,050207 economics - Abstract
This paper studies the information content of trades in the world's largest over-thecounter market, the foreign exchange (FX) market. The results are derived from a comprehensive order flow dataset distinguishing between different groups of market participants and covering a broad cross-section of currency pairs. Our findings show that both the contemporary and permanent price impact are heterogeneous across agents, time, and currency pairs, supporting the asymmetric information theory. A trading strategy based on the permanent price impact capturing superior information generates high returns even after accounting for risk, transaction costs, and other common risk factors documented in the FX literature.
- Published
- 2018
- Full Text
- View/download PDF
28. OTC Premia
- Author
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Gino Cenedese, Angelo Ranaldo, and Michalis Vasios
- Published
- 2018
- Full Text
- View/download PDF
29. Trading Volume, Illiquidity and Commonalities in FX Markets
- Author
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Angelo Ranaldo and Paolo Santucci de Magistris
- Subjects
040101 forestry ,History ,050208 finance ,Polymers and Plastics ,Financial stability ,05 social sciences ,Monetary policy ,04 agricultural and veterinary sciences ,Theoretical underpinning ,Monetary economics ,Industrial and Manufacturing Engineering ,0502 economics and business ,Economics ,0401 agriculture, forestry, and fisheries ,Arbitrage ,Business and International Management ,Volatility (finance) - Abstract
In a regime of floating FX rates and open economies, it is important to understand the way through which FX rates, volatility, and trading volume interrelate. To uncover this, we provide a simple theoretical framework to jointly explore these factors in a multi-currency environment. Through the use of a unique intraday data representative for the global FX market, the empirical analysis validates our theoretical predictions: (i) more disagreement increases FX trading volume, volatility, and illiquidity, (ii) stronger commonalities pertain to more efficient (arbitrage-free) currencies, and (iii) the Amihud (2002) measure, for which we provide a theoretical underpinning, is effective in measuring FX illiquidity. Not only do these findings support an integrated analysis of FX rate evolution and risk, but our work also offers a straightforward method to measure FX illiquidity and commonality. For investors, these insights should increase the efficiency of trading and risk analysis. For policy makers, our work highlights the developments of FX global volume, volatility, and illiquidity across time and currencies, which can be important for the implementation of monetary policy and financial stability.
- Published
- 2018
- Full Text
- View/download PDF
30. Judgement Day: Algorithmic Trading Around the Swiss Franc Cap Removal
- Author
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Angelo Ranaldo, Louisa Chen, Nicholas Vause, and Francis Breedon
- Subjects
040101 forestry ,050208 finance ,media_common.quotation_subject ,05 social sciences ,Judgement ,04 agricultural and veterinary sciences ,Monetary economics ,computer.software_genre ,Price discovery ,Market liquidity ,Surprise ,Currency ,0502 economics and business ,Economics ,0401 agriculture, forestry, and fisheries ,Foreign exchange ,Volatility (finance) ,Algorithmic trading ,computer ,media_common - Abstract
A key issue raised by the rapid growth of computerised algorithmic trading is how it responds in extreme situations. Using data on foreign exchange orders and transactions that includes identification of algorithmic trading, we find that this type of trading contributed to the deterioration of market quality following the removal of the cap on the Swiss franc on 15 January 2015, which was an event that came as a complete surprise to market participants. In particular, we find that algorithmic traders withdrew liquidity and generated uninformative volatility in Swiss franc currency pairs, while human traders did the opposite. However, we find no evidence that algorithmic trading propagated these adverse effects on market quality to other currency pairs.
- Published
- 2018
- Full Text
- View/download PDF
31. Online Appendix to 'Heterogeneous Information Content of Global FX Trading'
- Author
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Angelo Ranaldo and Fabricius Somogyi
- Subjects
Transaction cost ,Information asymmetry ,Order (exchange) ,Currency ,Econometrics ,Heterogeneous information ,Trading strategy ,Business ,Foreign exchange ,Price discovery - Abstract
This Appendix collects all tables and figures related to the paper. The paper studies the information content of trades in the world's largest over-thecounter market, the foreign exchange (FX) market. The results are derived from a comprehensive order flow dataset distinguishing between different groups of market participants and covering a broad cross-section of currency pairs. Our findings show that both the contemporary and permanent price impact are heterogeneous across agents, time, and currency pairs, supporting the asymmetric information theory. A trading strategy based on the permanent price impact capturing superior information generates high returns even after accounting for risk, transaction costs, and other common risk factors documented in the FX literature.
- Published
- 2018
- Full Text
- View/download PDF
32. Understanding FX Liquidity
- Author
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Nina Karnaukh, Paul Söderlind, and Angelo Ranaldo
- Subjects
Economics and Econometrics ,Theoretical models ,jel:F31 ,Monetary economics ,exchange rates, liquidity, transaction costs, commonality, low-frequency data ,jel:G12 ,Business studies ,Market liquidity ,jel:C15 ,jel:G15 ,Accounting ,8. Economic growth ,Economics ,Foreign exchange ,Volatility (finance) ,Speculation ,Finance ,Global risk - Abstract
We provide a comprehensive study of the liquidity of spot foreign exchange (FX) rates over more than two decades and a large cross-section of currencies. First, we show that FX liquidity can be accurately measured with daily and readily available data. Second, we demonstrate that FX liquidity declines with funding constraints and global risk, supporting theoretical models relating funding and market liquidity. In these distressed circumstances, liquidity tends to evaporate more for developed and riskier currencies. Finally, we show stronger comovements of FX liquidities in distressed markets, especially when funding is constrained, volatility is high, and FX speculators incur losses.
- Published
- 2015
- Full Text
- View/download PDF
33. The Time-Varying Systematic Risk of Carry Trade Strategies
- Author
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Charlotte Christiansen, Angelo Ranaldo, and Paul Söderlind
- Subjects
Economics and Econometrics ,jel:F31 ,carry trade, factor model, FX volatility, liquidity, smooth transition regression, time-varying betas ,economics ,jel:G11 ,Interest rate parity ,jel:G15 ,Carry (investment) ,Currency ,carry trade, factor model, smooth transition regression, time-varying betas ,carry trade ,factor model ,smooth transition regression ,time-varying betas ,Accounting ,Systematic risk ,Mean reversion ,Economics ,Econometrics ,Capital asset pricing model ,Stock market ,Volatility (finance) ,Finance - Abstract
We explain the currency carry trade performance using an asset pricing model in which factor loadings are regime-dependent rather than constant. Empirical results show that a typical carry trade strategy has much higher exposure to the stock market and is mean-reverting in regimes of high FX volatility. The findings are robust to various extensions, including more currencies, longer samples, transaction costs, international stock indices, and other proxies for volatility and liquidity. Our regime-dependent pricing model provides significantly smaller pricing errors than a traditional model. Thus, the carry trade performance is better explained by its time-varying systematic risk that magnifies in volatile markets-suggesting a partial explanation for the Uncovered Interest Rate Parity puzzle.
- Published
- 2017
- Full Text
- View/download PDF
34. Liquidity in the Foreign Exchange Market: Measurement, Commonality, and Risk Premiums
- Author
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Jan Wrampelmeyer, Loriano Mancini, and Angelo Ranaldo
- Subjects
Economics and Econometrics ,Financial risk management ,Liquidity crisis ,Financial system ,Liquidity risk ,Market maker ,Liquidity premium ,Market liquidity ,Accounting ,Economics ,Accounting liquidity ,Market impact ,health care economics and organizations ,Finance - Abstract
We provide the first systematic study of liquidity in the foreign exchange market. We find significant variation in liquidity across exchange rates, substantial illiquidity costs, and strong commonality in liquidity across currencies and with equity and bond markets. Analyzing the impact of liquidity risk on carry trades, we show that funding (investment) currencies offer insurance against (exposure to) liquidity risk. A liquidity risk factor has a strong impact on carry trade returns from 2007 to 2009, suggesting that liquidity risk is priced. We present evidence that liquidity spirals may trigger these findings.
- Published
- 2013
- Full Text
- View/download PDF
35. Intraday Patterns in FX Returns and Order Flow
- Author
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Angelo Ranaldo and Francis Breedon
- Subjects
Economics and Econometrics ,Flow (mathematics) ,Order (exchange) ,Financial economics ,Accounting ,Econometrics ,Economics ,Single market ,Foreign exchange ,Finance ,Market liquidity - Abstract
Using a comprehensive high-frequency foreign exchange dataset, we present evidence of time-of-day effects in foreign exchange returns through a significant tendency for currencies to depreciate during local trading hours. We confirm this pattern across a range of currencies and time zones. We also find that this pattern is reflected in order flow and suggest that both patterns relate to the tendency of market participants to be net purchasers of foreign exchange in their own trading hours. Data from a single market maker appears to corroborate that interpretation.
- Published
- 2013
- Full Text
- View/download PDF
36. Explaining the Failure of the Expectations Hypothesis with Short-Term Rates
- Author
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Matthias Rupprecht and Angelo Ranaldo
- Subjects
Collateral ,Risk premium ,media_common.quotation_subject ,Monetary policy ,Economics ,Contrast (statistics) ,Expectation hypothesis ,Monetary economics ,health care economics and organizations ,Term (time) ,Interest rate ,media_common - Abstract
This paper provides the first systematic study of the temporal and cross-sectional variation in the risk premium of the expectations hypothesis. Using a unique and comprehensive data set of short-term European repo rates, we explain the sources and the time variation affecting the risk premium. Our results from unconditional and conditional analyses show that the expectations hypothesis cannot be rejected when repos constitute riskless loans. By contrast, the expectations hypothesis is violated when interest rates are affected by funding risk and collateral risk. Securing loans with safe collateral and unconventional monetary policy can substantially reduce risk premiums, thus supporting the validity of the expectations hypothesis.
- Published
- 2017
- Full Text
- View/download PDF
37. Internet Appendix to 'A Simple Estimation of Bid-Ask Spreads from Daily Close, High, and Low Prices'
- Author
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Angelo Ranaldo and Farshid Abdi
- Subjects
business.industry ,Robustness (computer science) ,Computer science ,Financial economics ,Econometrics ,Capital asset pricing model ,The Internet ,Bid price ,business ,Market liquidity - Abstract
This internet appendix provides robustness checks and further analysis on the accuracy of the bid-ask spread estimation method proposed by Abdi and Ranaldo (2016).The paper "A Simple Estimation of Bid-Ask Spreads from Daily Close, High, and Low Prices" to which this internet appendix applies is available at the following URL: http://ssrn.com/abstract=2725981.
- Published
- 2017
- Full Text
- View/download PDF
38. Does FOMC news increase global FX trading?
- Author
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Angelo Ranaldo and Andreas Fischer
- Subjects
Economics and Econometrics ,CLs upper limits ,Open market operation ,Currency ,Settlement (finance) ,Derivatives market ,Economics ,Foreign exchange ,Monetary economics ,Finance - Abstract
Does global currency volume increase on Federal Open Market Committee (FOMC) days? To test hypotheses of abnormal currency volume on FOMC days, a new data set from the Continuous Linked Settlement (CLS) Bank is used. The CLS measure captures more than half of the global trading volume in foreign exchange (FX) markets. The evidence shows that FX trading volume increases about 5% in the spot and the spot-next market following FOMC deliberations. The novelty of this result is that the aggregated CLS data controls for responses in various derivatives markets: a feature that existing studies based on intradaily data for specific trading platforms do not consider.
- Published
- 2011
- Full Text
- View/download PDF
39. Do financial variables help predict the state of the business cycle in small open economies? Evidence from Switzerland
- Author
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Attilio Zanetti, Angelo Ranaldo, and Mario Meichle
- Subjects
Finance ,Economy ,business.industry ,Probit model ,Small open economy ,Business cycle ,Financial analysis ,Economics ,Stock market ,business ,Business studies ,Commodity (Marxism) ,Market liquidity - Abstract
We analyze the forecasting ability of financial variables to predict the state of the Swiss business cycle up to eight quarters ahead. Overall, our results suggest that financial variables convey leading information for the prediction of business cycles, even when applied to a small open economy. However, we clearly find that model specifications need to be extended to include variables accounting for external shocks, such as exchange rates or international commodity prices. It also appears that the forecasting contribution of individual variables changes over time. Specifically, in the last two decades, stock market liquidity has replaced the term spread as the best single predictor.
- Published
- 2011
- Full Text
- View/download PDF
40. The reaction of asset markets to Swiss National Bank communication
- Author
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Angelo Ranaldo and Enzo Rossi
- Subjects
Economics and Econometrics ,Inflation targeting ,central bank communication, speeches, interviews, monetary policy announcements, financial market reaction, high-frequency data ,Monetary policy ,jel:F31 ,Financial system ,Monetary economics ,National bank ,jel:G15 ,Stock exchange ,Central bank ,Economics ,Bond market ,Relevance (law) ,Asset (economics) ,Foreign exchange market ,Finance - Abstract
In this paper we analyze high-frequency movements in Swiss financial markets in reaction to real-time communication by the Swiss National Bank. Our analysis of central bank communication encompasses official speeches and interviews, not only monetary policy announcements. We examine the reactions of the currency market, the bond market and the stock exchange. The evidence suggests that speeches and interviews, along with monetary policy announcements, engender a significant price reaction. This paper sheds light on the relevance of communications other than monetary policy announcements.
- Published
- 2010
- Full Text
- View/download PDF
41. Segmentation and time-of-day patterns in foreign exchange markets
- Author
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Angelo Ranaldo
- Subjects
Working hours ,Economics and Econometrics ,Financial economics ,jel:F31 ,Monetary economics ,Domestic market ,Business studies ,jel:G10 ,Market liquidity ,Efficient-market hypothesis ,foreign exchange market, microstructure, behavioural finance, time-of-day patterns, market segmentation, calendar effects, inventory, asymmetric information, high-frequency data ,Time of day ,jel:G14 ,jel:G15 ,Market segmentation ,Currency ,Economics ,Segmentation ,Foreign exchange ,Foreign exchange risk ,Foreign exchange market ,Finance - Abstract
This paper sheds light on a puzzling pattern in foreign exchange markets: Domestic currencies appreciate (depreciate) systematically during foreign (domestic) working hours. These time-of-day patterns are statistically and economically highly significant. They pervasively persist across many years, even after accounting for calendar effects. This phenomenon is difficult to reconcile with the random walk and market efficiency hypothesis. Microstructural and behavioural explanations suggest that the main raison d'etre is a domestic-currency bias coupled with market segmentation. The prevalence of domestic (foreign) traders demanding the counterpart currency during domestic (foreign) working hours implies a cyclical net positive (negative) imbalance in dealers' inventory. In aggregate, this turns into sell-price (buy-price) pressure on the domestic currency during domestic (foreign) working hours.
- Published
- 2009
- Full Text
- View/download PDF
42. The euro interbank repo market
- Author
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Loriano Mancini, Angelo Ranaldo, Jan Wrampelmeyer, and Finance
- Subjects
Economics and Econometrics ,Collateral ,jel:E43 ,Monetary economics ,Repurchase agreement ,jel:G01 ,Business studies ,jel:G21 ,jel:G28 ,SDG 17 - Partnerships for the Goals ,business studies ,Accounting ,0502 economics and business ,Economics ,Repurchase agreements, Repo market, secured funding, liquidity hoarding, shadow banking system,financial crisis, unconventional monetary policy ,050207 economics ,Money market ,050208 finance ,business.industry ,05 social sciences ,jel:E58 ,jel:G12 ,Resilience (organizational) ,Repurchase agreements, money market structure, central counterparty, short-term debt, financial crisis, unconventional monetary policy ,Financial crisis ,The Internet ,Counterparty ,Interbank lending market ,business ,Finance - Abstract
The search for a market design that ensures stable bank funding is at the top of regulators' policy agenda. This paper empirically shows that the central counterparty (CCP)-based euro interbank repo market features this stability. Using a unique and comprehensive data set, we show that the market is resilient during crisis episodes and may even act as a shock absorber, in the sense that repo lending increases with risk, while spreads, maturities, and haircuts remain stable. Our comparison across different repo markets shows that anonymous CCP-based trading, safe collateral, and the absence of an unwind mechanism are the key characteristics to ensure market resilience. The internet appendix for this paper is available at the following URL: http://ssrn.com/abstract=2368158
- Published
- 2016
- Full Text
- View/download PDF
43. Uniform-Price Auctions for Swiss Government Bonds: Origin and Evolution
- Author
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Enzo Rossi and Angelo Ranaldo
- Subjects
TheoryofComputation_MISCELLANEOUS ,Auction theory ,Dutch auction ,finance ,TheoryofComputation_GENERAL ,economics ,Bidding ,Government bonds, Treasury auctions, uniform-price auction ,Revenue equivalence ,Microeconomics ,Economics ,Vickrey auction ,Common value auction ,Eauction ,English auction ,Industrial organization - Abstract
The Swiss Treasury has used the sealed-bid, uniform-price auction format for allocating government bonds since 1980. In this study, we examine the authorities' motivation for choosing the uniform-price auction. In addition, we describe how the institutional set-up evolved over time. It includes bidding requirements, class of bidders, pre-auction information, the bidding process, the determination of the cut-off price and the release of post-auction information. Finally, we provide the details of each of the 356 auctions that were held until and including 2014.
- Published
- 2016
- Full Text
- View/download PDF
44. Fragility of Money Markets
- Author
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Jan Wrampelmeyer, Angelo Ranaldo, and Matthias Rupprecht
- Subjects
Money market ,Endogenous money ,050208 finance ,05 social sciences ,Monetary policy ,Liquidity crisis ,Financial system ,Monetary economics ,Market liquidity ,Open market operation ,0502 economics and business ,Funding liquidity ,Business ,050207 economics ,Capital market - Abstract
We provide the first comprehensive theoretical model for money markets encompassing unsecured and secured funding, asset markets, and central bank policy. In our model, leveraged banks invest in assets and raise short-term funds by borrowing in the unsecured and secured money markets. We derive how funding liquidity across money markets is related, explain how a shock to asset values can lead to mutually reinforcing liquidity spirals in both money markets, and show how borrowers' right-to-safety and risk-seeking behavior impacts their liability structure. We derive the socially optimal leverage ratio and funding structure, and show which combination of conventional and unconventional monetary policies and regulatory measures can reduce money market fragility.
- Published
- 2016
- Full Text
- View/download PDF
45. Unsecured and Secured Funding
- Author
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Jan Wrampelmeyer, Mario di Filippo, and Angelo Ranaldo
- Subjects
Money market ,Leverage (finance) ,Financial crisis ,Credit crunch ,Financial system ,Interbank lending market ,Business ,Repurchase agreement ,Market liquidity ,Credit risk - Abstract
We provide the first joint analysis of the secured and unsecured money markets of the euro area using bank-level data. After the Lehman crisis, two important substitution mechanisms emerge: banks with higher credit risk offset reductions of unsecured borrowing with secured funding. Riskier banks replace unsecured lending by granting more secured loans. However, high leverage and reliance on short-term funding hamper banks' ability to substitute. Moreover, banks enduring money market strains contribute to the credit crunch. Overall, our findings suggest that the secured segment of the euro money market contributes to financial stability, mitigating systemic effects such as short-term funding strains and contagion.
- Published
- 2016
- Full Text
- View/download PDF
46. Realized bond—stock correlation: Macroeconomic announcement effects
- Author
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Angelo Ranaldo and Charlotte Christiansen
- Subjects
Economics and Econometrics ,media_common.quotation_subject ,Bond ,Monetary economics ,General Business, Management and Accounting ,Correlation ,Surprise ,Accounting ,Economics ,Business cycle ,Finance ,Stock (geology) ,Sign (mathematics) ,media_common - Abstract
The authors investigate the effects of macroeconomic announcements on the realized correlation between bond and stock returns. It was found that it is not so much the surprise component of the announcement, but the mere fact that an announcement occurs that influences the realized bond—stock correlation. The impact of macroeconomic announcements varies across the business cycle. Announcement effects are highly dependent on the sign of the realized bond—stock correlation, which has recently gone from positive to negative. Macroeconomic announcement effects on realized bond and stock volatilities are also investigated. Our results are robust across 8:30 A.M. and 10:00 A.M. announcements. © 2007 Wiley Periodicals, Inc. Jrl Fut Mark 27:439—469, 2007
- Published
- 2007
- Full Text
- View/download PDF
47. Hedge Fund Performance and Higher-Moment Market Models
- Author
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Angelo Ranaldo and Laurent Favre
- Subjects
Economics and Econometrics ,Hedge accounting ,Investment strategy ,Financial economics ,business.industry ,Hedge fund ,Market neutral ,Returns-based style analysis ,Cokurtosis ,Open-end fund ,Economics ,Alternative beta ,business ,Finance - Abstract
The CAPM model comes up short when explaining the superior performance of hedge funds in the past. This article argues that the Markowitz mean-variance criterion underpinning the traditional CAPM may fail to capture systematic features characterizing hedge fund performance. The two-moment market model is extended to a higher-moment model to accommodate coskewness and cokurtosis. The authors note that the higher-moment approach is more appropriate for capturing the non-linear relation between hedge fund and market returns and accounting for the specific risk-return payoffs of each hedge fund investment strategy. The key result is that the two-moment pricing model on a stand alone basis may be misleading and may wrongly indicate insufficient compensation for the investment risk.
- Published
- 2005
- Full Text
- View/download PDF
48. Internet Appendix to 'Understanding FX Liquidity'
- Author
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Angelo Ranaldo, Paul Söderlind, and Nina Karnaukh
- Subjects
World Wide Web ,Computer science ,Robustness (computer science) ,business.industry ,The Internet ,Computer security ,computer.software_genre ,business ,computer ,Market liquidity - Abstract
The Internet Appendix discusses details, additional results and robustness checks on the paper.The paper "Understanding FX Liquidity" to which these Appendices apply is available at the following URL: http://ssrn.com/abstract=2329738
- Published
- 2015
- Full Text
- View/download PDF
49. Precious metals under the microscope: a high-frequency analysis
- Author
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Angelo Ranaldo, Massimiliano Caporin, and Gabriel G. Velo
- Subjects
Matching (statistics) ,Spot contract ,chemistry.chemical_element ,jel:C22 ,precious metals ,high frequency data ,Liquidity ,commonality ,intradaily periodicity ,law.invention ,law ,Econometrics ,Economics ,Asset (economics) ,Stylized fact ,Frequency analysis ,Volatility clustering ,jel:C52 ,jel:C58 ,jel:G10 ,Market liquidity ,chemistry ,precious metals, high-frequency data, liquidity, commonality in liquidity, intradaily periodicity ,Platinum ,General Economics, Econometrics and Finance ,Finance - Abstract
Taking advantage of a trades-and-quotes high-frequency database, we document the main stylized facts and dynamic properties of spot precious metals, i.e. gold, silver, palladium, and platinum. We analyze the behaviors of spot prices, returns, volume, and selected liquidity measures. We find clear evidence of periodic patterns matching the trading hours of the most active markets round-the-clock. The time series of spot returns have thus properties similar to those of traditional financial assets with fat tails, asymmetry, periodic behaviors in the conditional variances, and volatility clustering. The gold (platinum) is the most (least) liquid and less (most) volatile asset. Commonality in liquidities of precious metals is very strong.
- Published
- 2015
50. Transaction costs on the Swiss stock exchange
- Author
-
Angelo Ranaldo
- Subjects
Transaction cost ,Nominal size ,Financial economics ,Order (exchange) ,Stock exchange ,Order processing ,Economics ,Adverse selection ,Monetary economics ,Cost component ,Market liquidity - Abstract
I analyze the transaction costs on the Swiss Stock Exchange (SWX). Trading costs on the SWX are in line with the NYSE. The bid-ask spread components are examined in relation with market liquidity, trade size and the time of the day. The order processing costs are the largest cost component but the adverse selec-tion and order persistence components are also significant. Adverse selection and proc-essing costs affect to a wider extent less liquid stocks and characterize the afternoon trading. Also, the adverse selection (order processing) component increases (decreases) with trade size.
- Published
- 2002
- Full Text
- View/download PDF
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