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Jean-Edouard Colliard

10 May 2013
WORKING PAPER SERIES - No. 1545
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Abstract
Market participants often invest in order to acquire information that pertains to the market itself (e.g. order flow) rather than to fundamentals. This enables them to infer more information from past trades. I show that agents trading on such information, typically high-frequency traders, decrease the likelihood of short-lived mispricings by trading against price pressure. In the long-run however, such countervailing speculation amounts to signal-jamming, slowing down price discovery. These traders insure the market against short-run crashes by "catching falling knives". Higher adverse selection and slower convergence form the "premium" paid by other market participants.
JEL Code
D82 : Microeconomics→Information, Knowledge, and Uncertainty→Asymmetric and Private Information, Mechanism Design
G0 : Financial Economics→General
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G14 : Financial Economics→General Financial Markets→Information and Market Efficiency, Event Studies, Insider Trading
21 February 2014
WORKING PAPER SERIES - No. 1641
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Abstract
The regulatory use of banks' internal models aims at making capital requirements more accurate and reducing regulatory arbitrage, but may also give banks incentives to choose their risk models strategically. Current policy answers to this problem include the use of risk-weight floors and leverage ratios. I show that banks for which those are binding reduce their credit supply, which drives interest rates up, invites other banks to adopt optimistic models and possibly increases aggregate risk in the banking sector. Instead, the strategic use of risk models can be avoided by imposing penalties on banks with low risk-weights when they suffer abnormal losses or bailing out defaulting banks that truthfully reported high risk measures. If such selective bail-outs are not desirable, second-best capital requirements still rely on internal models, but less than in the first-best.
JEL Code
D82 : Microeconomics→Information, Knowledge, and Uncertainty→Asymmetric and Private Information, Mechanism Design
D84 : Microeconomics→Information, Knowledge, and Uncertainty→Expectations, Speculations
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
G38 : Financial Economics→Corporate Finance and Governance→Government Policy and Regulation
29 April 2015
WORKING PAPER SERIES - No. 1786
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Abstract
Both in the United States and in the Euro area, bank supervision is the joint responsibility of local and central/federal supervisors. I study how such a system can optimally balance the lower inspection costs of local supervisors with the ability of the central level to internalize cross-border or interstate externalities. The model predicts that centralised supervision endogenously increases market integration and cross-border externalities, further strengthening the need for centralised supervision. This complementarity implies that, for some parameterizations of the model, the economy can be trapped in a local supervision equilibrium with low supervision and integration. In such a case, the forward-looking introduction of a centralized supervisory architecture achieves a superior equilibrium.
JEL Code
D53 : Microeconomics→General Equilibrium and Disequilibrium→Financial Markets
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
G33 : Financial Economics→Corporate Finance and Governance→Bankruptcy, Liquidation
G38 : Financial Economics→Corporate Finance and Governance→Government Policy and Regulation
L51 : Industrial Organization→Regulation and Industrial Policy→Economics of Regulation
28 February 2017
WORKING PAPER SERIES - No. 2030
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Abstract
We use the introduction of a financial transaction tax (FTT) in France in 2012 to test competing theories on its impact. We find no support for the idea that an FTT improves market quality by affecting the composition of trading volume. Instead, our results are in line with the hypothesis that a lower trading volume reduces liquidity, and thereby market quality. Consistent with theories of asset pricing under transaction costs, we document a shift in security holdings from short-term to long-term investors. Finally, our findings show that moderate aggregate effects on market quality can mask large adjustments made by individual agents.
JEL Code
G10 : Financial Economics→General Financial Markets→General
G14 : Financial Economics→General Financial Markets→Information and Market Efficiency, Event Studies, Insider Trading
G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
H32 : Public Economics→Fiscal Policies and Behavior of Economic Agents→Firm
27 May 2019
WORKING PAPER SERIES - No. 2287
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Abstract
The architecture of supervision – how we define the allocation of supervisory powers to different policy institutions – can have implications for policy conduct and for the economic and financial environment in which these policies are implemented. Theoretically, an integrated structure for monetary policy and supervision brings important benefits arising from better information flow and policy coordination. Aggregate supervisory information may significantly improve the conduct of monetary policy and the effectiveness of the lender of last resort function. As long as the process towards an integrated structure does not shrink the set of available tools, monetary policy and supervision are no less effective in pursuing their objectives than a separated structure. Additionally, an integrated structure does not seem to be correlated with more price and/or financial instability, as suggested by analysing a large global set of countries with different supervisory set-ups. A centralised structure for supervision entails significant benefits in terms of fewer opportunities for supervisory arbitrage by banks and less informational asymmetry. A large central supervisor can take advantage of economies of scale and scope in supervision and gain a broader perspective on the stability of the entire banking sector, which should result in improved financial stability. Potential drawbacks of a centralised supervisory structure are the possible lack of specialisation relative to local supervisors and the increased distance between the supervisor and the supervised institutions. We discuss the implications of our findings in the euro area context and in relation to the design of the Single Supervisory Mechanism (SSM).
JEL Code
E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G38 : Financial Economics→Corporate Finance and Governance→Government Policy and Regulation
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Discussion papers
26 February 2021
WORKING PAPER SERIES - No. 2529
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Abstract
We propose a new model of trading in OTC markets. Dealers accumulate inventories by trading with end-investors and trade among each other to reduce their inventory holding costs. Core dealers use a more efficient trading technology than peripheral dealers, who are heterogeneously connected to core dealers and trade with each other bilaterally. Connectedness affects prices and allocations if and only if the peripheral dealers’ aggregate inventory position differs from zero. Price dispersion increases in the size of this position. The model generates new predictions about the effects of dealers' connectedness and dealers' aggregate inventories on prices.
JEL Code
G10 : Financial Economics→General Financial Markets→General
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G19 : Financial Economics→General Financial Markets→Other