Institutional presence in secondary bank bond markets: How does it affect liquidity and volatility?

Arbeitspapier

Using newly available information on euro area sectoral holdings of securities, this paper investigates to what extent the presence of institutional investors affects volatility and liquidity in secondary bank bond markets. We find that non-bank financial intermediaries, in particular money market funds (MMFs), have a positive impact on secondary bank bond markets' liquidity conditions, at the cost of significantly increasing volatility of daily returns. The effect translates to more than a 19% improvement in liquidity conditions and up to 57% increase in daily-return volatility, assuming MMFs hold about 10% of the notional amount in the secondary market of a representative euro area bank bond. The effect is relative to the impact the non-financial private sector has on markets. Investment funds, insurance corporations and pension funds are found to similarly affect market conditions, though to a lesser magnitude. We find a trade-off between volatility and liquidity, where the stronger presence of institutional investors at the same time improves liquidity and increases volatility. The results suggest that possible structural shifts in investor composition matter for market conditions and should be monitored by financial stability authorities.

Angaben zum Objekt

• ISBN: 978-92-899-3538-8
• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: ECB Working Paper ; No. 2276

Klassifikation und Themen

• Klassifikation: Wirtschaft ; General Financial Markets: General (includes Measurement and Data) ; International Financial Markets ; Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors
• Thema: Financial Markets ; Institutional Ownership ; Bond Liquidity ; Securities Holdings ; Generalized Method of Moments

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Oprică, Silviu ; Weistroffer, Christian P.
• Ereignis: Veröffentlichung
• (wer): European Central Bank (ECB)
• (wo): Frankfurt a. M.
• (wann): 2019

Weitere Informationen

• DOI: doi:10.2866/46155
• Handle: http://hdl.handle.net/10419/208310
• Letzte Aktualisierung: 10.03.2025, 11:43 MEZ