Paolo Paesani

Quoted Spreads and Trade Imbalance Dynamics in the European Treasury Bond Market

Using high-frequency transaction data for the three largest European markets (France, Germany and Italy), this paper documents the existence of an asymmetric relationship between market liquidity and trading imbalances: when quoted spreads rise (fall) and liquidity falls (increases) buy (sell) orders tend to prevail. Risk-averse market-makers, with inventory-depletion risk being their main concern, tend to quote wider (narrower) spreads when they think bond appreciation is more (less) likely to occur. It is also found that the probability of being in a specific regime is related to observable bond market characteristics, stock market volatility, macroeconomic releases and liquidity management operations of the monetary authorities.

An Assessment of the Theory of Storage: Has the Relationship between Commodity Price Volatility and Market Fundamentals Changed Over Time?

In this paper we investigate the relationship between commodity price volatility and market fundamentals comparing the 1920s with the present decade and focusing on cotton and tin. The theory of storage provides the theoretical reference for the analysis. Our first result is to find that the series have widely different properties which reflect the speedier diffusion of information in the markets today. This emerges both in the order of autocorrelation of the VECMs used to analyze the dynamics of the spot and futures returns and in the structure of the GARCH parameterization. Our second finding is to show that, based on full sample correlations, the theory of storage seems to capture the dynamics of data with the exception of historical tin. Rolling correlations, however, qualify this result and show that dynamic correlation for historical tin largely corroborate the theory of reference while recent inroads of financial agents in commodity markets seem to have affected the cotton market, giving prominence to financial risk factors.

Fiscal shocks, public debt, and long-term interest rate dynamics

Public …nances worldwide have been severely hit by the late 2000s Great Recession, stimulating the debate on the consequences of growing …scal imbalances. This paper focuses on the USA, Germany and Italy over

On the Difficulty of Interpreting Market Behavior in an Uncertain World: The Case of Oil Futures Pricing between 2003 and 2016.

Our results show that over the two cycles that characterize the 2003-2016 period a significant change in the working of oil markets occurs. Our pricing investigation, based on a three-agent model (hedgers, fundamentalist speculators and chartists), find that from 2009 onwards traditional analysis of supply and demand forecasts, loses its explanatory power and hence its credibility. The sharp and unexpected fluctuations in oil prices, compounded by unpredictable political factors and technological break-troughs (e.g. tight sands/shale oil) strongly raises uncertainty and reduces the effectiveness of customary forecasting techniques.

Developments in Macro-Finance Yield Curve Modelling: Some considerations on debt and interest rates

17.1 Introduction In recent years public debt/GDP ratios have increased considerably in many advanced countries. This is the consequence of three concomitant causes: (i) the Great Recession following the 2007–2009 global financial crisis, (ii) anti-cyclical fiscal measures adopted in response to the crisis, (iii) government transfers to bail out troubled financial institutions. Expansionary monetary policy, operating through conventional and unconventional channels, moderated the impact of fiscal shocks on government refinancing costs. In late 2010, the emergence of unexpectedly large fiscal imbalances in a group of euro area countries shook the confidence of government bond holders. Delays in the response by European authorities aggravated the problem. Interest spreads vis a vis Germany increased considerably for many euro area countries. Greece, Portugal and Ireland had to seek international support and are currently grappling with a deep recession which also affects Spain and to a lesser extent Italy. In view of these developments, the analysis of the linkages among fiscal shocks, public debt and refinancing rates is at the centre of the current debate among economists and policymakers. We contribute to this debate by investigating these linkages for the USA, Germany and Italy, three among the largest issuers of public debt securities in the world. A large empirical literature is devoted to the study of the relationship between public debt/deficit and interest rates.

Speculative Cotton Pricing in the 1920s: A Nonlinear Tale of Noise Traders and Fundamentalists

The paper investigates the role of speculation in the Liverpool cotton futures market between 1921 and 1929. The analysis is based on historical descriptions of the working of speculation in commodity markets and is related to the tenets of behavioural finance. The model posits the existence of two categories of speculators, noise traders and fundamentalists, who react (differently) to deviations of market prices from their fundamental value. The empirical analysis is based on original data drawn from the online archives of The Times. The empirical findings allow us to conclude that whereas noise traders tend to herd, fundamentalists are more affected by risk aversion and react asymmetrically more to underpricing than to overpricing of the cotton contracts. As expected, the presence of fundamentalists stabilizes the market. Interestingly our results seem to be consistent with the observations of expert witnesses of those markets.

NET FOREIGN ASSETS IN THE EURO AREA: A COINTEGRATION ANALYSIS

This paper discusses the macroeconomics of NFA at the Euro Area level, making use of the cointegrated VAR methodology. The wish to contribute to the literature on EMU motivates the choice of the topic; the non-stationarity of the data explains the choice of the methodology. The main conclusion of the paper is that, as far as Net Foreign Assets are concerned, the use of synthetic Euro area aggregate data yields a series of results consistent with economic theory. Real growth and exchange rate appreciation are both consistent with NFA accumulation. Portfolio adjustment considerations appear also to be important.