Research Seminar by R. Anton Braun (Federal Reserve Bank of Atlanta)

News from Apr 26, 2016

This week, R. Anton Braun of the Federal Reserve Bank of Atlanta will be the speaker of the Quantitative Economic Colloquium. He will present his research paper "Why Prices Don't Respond Sooner to a Prospective Sovereign Debt Crisis" on Thursday, April 28, 5-7 pm at Kaminzimmer (room 202), Boltzmannstraße 20, Berlin-Dahlem.

Abstract
:
Since 2008 actions have been taken in Europe and elsewhere that increase the cost of short-selling sovereign debt. We show that such actions can have a profound effect on the timing and magnitude of price responses to bad news in periods leading up to a sovereign default. When financial markets are frictionless, prices drop instantly in response to bad
news even if the prospect of a crisis is very remote. Imposing costs on short-selling disrupts this dynamic. Government bond prices exhibit no response to bad news when the prospects are remote. Instead price declines only occur immediately prior to a sovereign default and then in a nonlinear way.


For further information about the Quantitative Economic Colloquium and its program, please click here.

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