Bank funding liquidity and market liquidity as a sentiment

Illiquidity amplifies supply shocks, increasing realized volatility of prices, which feeds into subsequent volatility forecasts. News media sentiment is a strong contrarian indicator. We address three questions relating to the interest rate options market: Analogously, a small fraction of the better performing mutual fund managers are retained by allowing them to manage a hedge fund side-by-side. High perceived volatility leads to high risk premium, low current return, low risk-free rate and illiquid markets.

Overall, our evidence points to differential limits to arbitrage faced by different types of arbitrageurs. Given the quick and complete reversal, trading by individual investors can be viewed as a pure liquidity shock i. High perceived volatility leads to high risk premium, low current return, low risk-free rate and illiquid markets. Asset allocation based on margin credit generates a Sharpe ratio of 0.

This suggests that fee increases, which typically apply only to new investors, may benefit existing investors by mitigating diseconomies of scale. High perceived volatility leads to high risk premium, low current return, low risk-free rate and illiquid markets. Confirming the predictions of regret theory, the effect of regret is stronger following an action rather than inaction, loss on the prior order, and an unusual order strategy for the individual.

It avoids the stock market downturns around and Net selling increases illiquidity, which amplifies downside flow-driven risk. Our findings are useful for the pricing, hedging and risk management of these derivatives. Overall, our evidence points to differential limits to arbitrage faced by different types of arbitrageurs. Flow-driven risk is time varying because price impact is highly variable.

It anticipates lower future dividend, earnings, and GDP growth and higher future risk measured by higher VIX, average equity correlation, macro and financial uncertainty, and lower intermediary equity ratio. Illiquidity rises with market volatility, but not with flow uncertainty. Our findings are useful for the pricing, hedging and risk management of these derivatives. This study investigates the effects of funding liquidity conditions on price impact and order-book depth using a comprehensive dataset of orders and trades in the Indian government bond market.

A small fraction of these poor performers find jobs with smaller and younger hedge fund companies, especially when the hedge fund industry is growing rapidly. Flow-driven risk is time varying because price impact is highly variable. We find a clear smile pattern in interest rate options. Given the quick and complete reversal, trading by individual investors can be viewed as a pure liquidity shock i. Fund family characteristics and prior performance play an important role in fee determination.

New fund families are likely to charge at- or above-median fees. Net selling increases illiquidity, which amplifies downside flow-driven risk. Initial fees of funds introduced by an existing family are positively related to the prior performance of the family as well as of the investment strategy they follow. The shape of the smile varies over time and is affected in a dynamic manner by yield curve variables and the future uncertainty in the interest rate markets; it also has information about future aggregate default risk. Illiquidity rises with market volatility, but not with flow uncertainty.

Margin credit, defined as the excess debt capacity of investors buying securities on the margin, predicts lower aggregate stock returns very strongly, outperforming other forecasting variables proposed in the literature. Yet very few studies analyze the effect of experienced regret on subsequent decisions in a real-world-setting. This is again tempered by the indirect positive effect of tighter funding conditions on order-book depth via greater uninformed bond trading.

Under this interpretation, investors with constant risk tolerance should trade against such shocks i. Controlling for these and other characteristics does not eliminate the returns associated with variation in media sentiment. Given the quick and complete reversal, trading by individual investors can be viewed as a pure liquidity shock i.

We measure funding liquidity along both price and quantity dimensions in the repo market, as well as the interaction of the two. This liquidity discount, though opposite to that found in equities and bonds, is consistent with the structure of this OTC market and the nature of its demand and supply forces. We address three questions relating to the interest rate options market: This suggests that fee increases, which typically apply only to new investors, may benefit existing investors by mitigating diseconomies of scale. We bank funding liquidity and market liquidity as a sentiment that after experiencing regret, individuals are more likely to change their decision to place a market or limit order.