Johannes Breckenfelder
Research
- Division
-
Financial Research
- Current Position
-
Senior Economist
- Fields of interest
-
Financial Economics,Macroeconomics and Monetary Economics
- Education
- 2014
PhD in Finance, Stockholm School of Economics, Sweden
- Professional experience
- 2020-
Senior Economist - Financial Research Division, Directorate General Research, European Central Bank
- 2014-2019
Economist - Financial Research Division, Directorate General Research, European Central Bank
- 24 November 2021
- RESEARCH BULLETIN - No. 89Details
- Abstract
- The outbreak of the coronavirus (COVID-19) pandemic led to heightened uncertainty and a “dash-for-cash” in March 2020. Investors moved out of risky assets and into safe assets. The mutual fund sector in particular was hit by unprecedented investor redemptions and faced fire sale pressure as a result. Typically, banks that engage in securities trading – dealer banks – absorb such bond sales, supporting market liquidity, but regulation may limit their ability to do so by requiring them to maintain a certain leverage ratio. In recent research, we analyse the role of bank leverage constraints as an amplifier of bond market illiquidity during the March 2020 crisis. Our analysis links mutual funds bond holdings to dealer banks and their leverage constraints. We document that mutual funds that were holding more bonds exposed to dealer bank constraints in their portfolio faced bigger selling pressure in March 2020. We provide supplementary evidence that bank leverage constraints affect bond liquidity, using the introduction of leverage ratio regulation in the euro area.
- JEL Code
- G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 23 September 2021
- WORKING PAPER SERIES - No. 2589Details
- Abstract
- We explore the ties between bonds and individual dealers formed through home advantage and the persistence of previous underwriting relationships. Building on these connections, we show that the introduction of the leverage ratio for the European banks had a large impact on exposed bonds’ liquidity. Moreover, based on these ties, we show that bond mutual fund panic following the 2020 pandemic outbreak affected substantially more mutual funds with the larger exposures to dealer banks’ balance sheet constraints.
- JEL Code
- G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 15 December 2020
- RESEARCH BULLETIN - No. 78Details
- Abstract
- When high-frequency trading firms compete, does stock market liquidity deteriorate? I argue that the answer is yes. High-frequency trading competition may impact stock market liquidity via two channels. First, more competition is accompanied by more high-frequency trading and larger trading volumes, which improve market liquidity. Second, more competition may mean that high-frequency traders adapt their trading strategies and engage in more speculative trades, which harms market liquidity. Since these two channels have the opposite effects on market liquidity, it is important to disentangle the effects of competition from those of a mere increase in the number/volume of high-frequency trading transactions. In the analysis, I aim to do precisely this, by using an exogenous event which changed the intensity of high-frequency competition for some stocks but not for others. I find that otherwise similar stocks subject to more high-frequency trading competition become less liquid.
- JEL Code
- G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
D4 : Microeconomics→Market Structure and Pricing
- 11 June 2019
- WORKING PAPER SERIES - No. 2290Details
- Abstract
- We study empirically how competition among high-frequency traders (HFTs) affects their trading behavior and market quality. Our analysis exploits a unique dataset, which allows us to compare environments with and without high-frequency competition, and contains an exogenous event - a tick size reform - which we use to disentangle the effects of the rising share of high-frequency trading in the market from the effects of high-frequency competition. We find that when HFTs compete, their speculative trading increases. As a result, market liquidity deteriorates and short-term volatility rises. Our findings hold for a variety of market quality and high-frequency trading behavior measures.
- JEL Code
- 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
G15 : Financial Economics→General Financial Markets→International Financial Markets
G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
D4 : Microeconomics→Market Structure and Pricing
D61 : Microeconomics→Welfare Economics→Allocative Efficiency, Cost?Benefit Analysis
- 18 December 2018
- RESEARCH BULLETIN - No. 53Details
- Abstract
- When a country sees its sovereign credit risk rise, do companies in that country also see their credit risk increase? We show that the answer is yes. Companies with a large public-sector ownership, as well as companies that borrow heavily from banks, are most affected. This suggests that the transmission of credit risk from sovereigns to non-financial companies occurs primarily through a fiscal and a financial channel, and points to the importance of reducing such risk spillovers and thereby overall risk in the economy, e.g. by means of the capital markets union.
- JEL Code
- F34 : International Economics→International Finance→International Lending and Debt Problems
F36 : International Economics→International Finance→Financial Aspects of Economic Integration
G15 : Financial Economics→General Financial Markets→International Financial Markets
H81 : Public Economics→Miscellaneous Issues→Governmental Loans, Loan Guarantees, Credits, Grants, Bailouts
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
- 6 November 2018
- WORKING PAPER SERIES - No. 2193Details
- Abstract
- We study spillovers from bank to sovereign risk in the euro area using difference specifications around the European Central Bank’s release of stress test results for 130 significant banks on October 26, 2014. We document that following this information release bank equity prices in stressed countries declined. Surprisingly, bank risk in stressed countries was not absorbed by their sovereigns but spilled over to non-stressed euro area sovereigns. As a result, in non-stressed countries, the co-movement between sovereign and bank risk increased. This suggests that market participants perceived that bank risk is shared within the euro area.
- JEL Code
- C68 : Mathematical and Quantitative Methods→Mathematical Methods, Programming Models, Mathematical and Simulation Modeling→Computable General Equilibrium Models
F34 : International Economics→International Finance→International Lending and Debt Problems
- 9 September 2016
- WORKING PAPER SERIES - No. 1956Details
- Abstract
- This paper analyses the effects of the European Central Bank's expanded asset purchase programme (APP) on yields and on the macroeconomy, and sheds some light on its transmission channels. It shows, first, that the January 2015 announcement of the programme has significantly and persistently reduced sovereign yields on long-term bonds and raised the share prices of banks that held more sovereign bonds in their portfolios. This evidence is consistent with versions of the portfolio rebalancing channel acting through the removal of duration risk and the relaxation of leverage constraints for financial intermediaries. It then presents a stylised macroeconomic model that incorporates the aforementioned transmission channels. The model suggests that the macroeconomic impact of the programme can be expected to be sizable.
- JEL Code
- E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates - Network
- Discussion papers
- 18 January 2016
- WORKING PAPER SERIES - No. 1878Details
- Abstract
- The first Greek bailout on April 11, 2010 triggered a significant reevaluation of sovereign credit risk across Europe. We exploit this event to examine the transmission of sovereign to corporate credit risk. A ten percent increase in sovereign credit risk raises corporate credit risk on average by 1.1 percent after the bailout. The evidence is suggestive of risk spillovers from sovereign to corporate credit risk through a financial and a fiscal channel, as the effects are more pronounced for firms that are bank or government dependent. We find no support for indirect risk transmission through a deterioration of macroeconomic fundamentals.
- JEL Code
- F34 : International Economics→International Finance→International Lending and Debt Problems
F36 : International Economics→International Finance→Financial Aspects of Economic Integration
G15 : Financial Economics→General Financial Markets→International Financial Markets
H81 : Public Economics→Miscellaneous Issues→Governmental Loans, Loan Guarantees, Credits, Grants, Bailouts
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
- 2018
- Journal of Empirical Finance
- 2018
- Journal of Money, Credit and Banking