PrefBlog

The Federal Reserve Bank of New York has released a Staff Report by Olivier Armantier, Eric Ghysels, Asani Sarkar, and Jeffrey Shrader titled Stigma in Financial Markets: Evidence from Liquidity Auctions and Discount Window Borrowing during the Crisis:

We provide empirical evidence for the existence, magnitude, and economic impact of stigma associated with banks borrowing from the Federal Reserve’s discount window facility. We find that, during the height of the financial crisis, banks were willing to pay an average premium of at least 37 basis points (and 150 basis points after Lehman’s bankruptcy) to borrow from the Term Auction Facility rather than from the discount window. The incidence of stigma varied according to bank characteristics and market conditions. Finally, we find that discount window stigma is economically relevant since it increased banks’ borrowing costs during the crisis. Our results have important implications for the provision of liquidity by central banks.

Also released was a Staff Report by Maria Kasch and Asani Sarkar titled Comovement Revisited:

We find, unlike earlier studies, that there is no rise in the market betas of stocks that enter the S&P 500 index when the estimated factor model is that of Fama and French (1993). We also find that SMB and HML factor betas decline after the stocks are added to the index. This decline is explained by strong increases in earnings and in the market value of the event stocks in the period around―and, in particular, prior to―their inclusion in the index. We suggest that inclusions to the S&P 500 index are informative events that trigger a reassessment of the risk of newly added firms by drawing the broad market’s attention to their extraordinary growth in size and profitability.

It was a good day in the Canadian preferred share market, with PerpetualDiscounts up 16bp, FixedResets gaining 3bp and DeemedRetractibes winning 11bp. Above-average volume.

This entry was posted on Tuesday, March 1st, 2011 at 9:48 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.