The Liquidity Effects of Official Bond Market Intervention

Michiel De Pooter, Robert F. Martin, Seth Pruitt

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

To ensure depth and liquidity, the European Central Bank intervened in sovereign debt markets through its Securities Markets Programme (SMP), providing a unique opportunity to estimate the effects of large-scale asset purchases on sovereign bond liquidity premia. From reduced-form estimates, we find robust, economically significant impact and lasting reductions in sovereign bonds' liquidity premia in response to official purchases. We develop a search-based asset-pricing model to understand our empirical results. The theory implies that bond liquidity premia fall in response to both official purchases and rising sovereign default probabilities, as seen in the data.

Original languageEnglish (US)
Pages (from-to)243-268
Number of pages26
JournalJournal of Financial and Quantitative Analysis
Volume53
Issue number1
DOIs
StatePublished - Feb 1 2018

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Liquidity
Bond market
Liquidity effect
Market intervention
Purchase
Sovereign bonds
Securities market
European Central Bank
Sovereign debt
Reduced form
Default probability
Sovereign default
Empirical results
Asset pricing models
Assets

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this

The Liquidity Effects of Official Bond Market Intervention. / De Pooter, Michiel; Martin, Robert F.; Pruitt, Seth.

In: Journal of Financial and Quantitative Analysis, Vol. 53, No. 1, 01.02.2018, p. 243-268.

Research output: Contribution to journalArticle

De Pooter, Michiel ; Martin, Robert F. ; Pruitt, Seth. / The Liquidity Effects of Official Bond Market Intervention. In: Journal of Financial and Quantitative Analysis. 2018 ; Vol. 53, No. 1. pp. 243-268.
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