Research
Jean-David Sigaux
PUBLICATIONS
ABSTRACT: This paper shows that the liquidation value of collateral depends on the interdependency between borrower and collateral risk. Using transaction-level data on short-term repurchase agreements (repo), we show that borrowers pay a 1.1 to 2.6 basis points premium when their default risk is positively correlated with the risk of the collateral that they pledge. Moreover, we show that borrowers internalize this premium when making their collateral choices. Loan-level credit registry data suggest that the results extend to the corporate loan market as well.
Presented at the 47th EFA annual meeting (Helsinki), the 6th IWH-FIN-FIRE Workshop, the 2021 Credit Risk over the Business Cycle Conference, and the University College Dublin
Journal of Banking and Finance (2024)
ABSTRACT: I develop a model explaining the gradual price decrease observed ahead of anticipated asset sales, such as Treasury auctions. In the model, risk-averse investors expect a noisy increase in the net supply of a risky asset. They face a trade-off between hedging the noise with long positions, and speculating with short positions. As a result of hedging, the equilibrium price is above the expected price. As the sale approaches, the noise decreases due to the arrival of information, investors hedge less, and the price decreases. I illustrate the relevance of the theory in the days preceding Italian Treasury issuances. I find that meetings between the Treasury and primary dealers explain a 2.4 bps yield increase.
Presented at the 2019 AFA Annual Meeting, 2019 European Summer Symposium in Financial Markets (Gerzensee), the 67th Midwest Finance Association Annual Conference, the 14th Paris December Finance Meeting, the 8th Annual Financial Market Liquidity Conference, and seminar participants at Brandeis University, Warwick Business School, Toulouse School of Economics, HEC Paris, Erasmus School of Management, the European Central Bank, BI Oslo, NHH Bergen, Dauphine University, ESCP and Audencia.
with P. Hartmann, A. Leonello, S. Manganelli, M. Papoutsi, and I. Schnabel
VoxEU (2022)
ABSTRACT: Market imperfections strongly influence the volume of greenhouse gas emissions, which is a key driver of climate change. While governments should lead climate policies in the first place, a broad coalition of actors across society, including central banks, needs to contribute to transition to a carbon-neutral economy in a timely and orderly fashion. The ECB’s mandate states that it must pursue its primary and secondary objectives in conformity with an open market economy, favouring an efficient allocation of resources. This column argues that this provision clarifies how the ECB shall take climate considerations into account, including but going beyond climate-related financial risks. This is relevant, for example, for monetary policy operations and supervisory policies.
ABSTRACT: We study the determinants of individual banks’ excess reserve holdings in the context of the ECB’s public sector purchase programme by testing hypotheses concerning the roles of risk-taking, investment opportunities, and market structure. Excess reserves systematically accrue on the balance sheets of banks with a low share of customer deposits, low opportunity costs, and high payments settlement activity.
WORKING PAPERS
with L. Baldo, F. Heider, P. Hoffmann and O. Vergote
ABSTRACT: We study how banks manage their liquidity among the various assets at their disposal. We exploit the introduction of the ECB's two-tier system which heterogeneously reduced the cost of additional reserves holdings. We find that the treated banks increase reserve holdings by borrowing on the interbank market, decreasing lending to affiliates of the same group, and selling marketable securities. We also find that banks have a preference for a stable portfolio composition of liquid assets over time. Our results imply that frictions in one market for liquidity can spill over to several markets.
International Capital Allocation and Currency Risk Hedging
with C. Kubitza and Q. Vandeweyer
CHAPTERS OF DOCTORAL THESIS
Are Short-Sellers of Sovereign Bonds Informed About Auctions?
ABSTRACT: I ask if short-sellers are superiorly informed about sovereign auctions. I identify shifts in short-selling demand as a simultaneous change in both the volume and the specialness of repo transactions collateralized by soon-to-be-issued bonds. I find a large average increase in demand for short-selling prior to auctions: Repo volume and specialness of Italian sovereign bonds increase by 30% and 13 bps respectively on the eve of the auction day compared to four days before. Yet, I do not find that the demand for short-selling a bond predicts a subsequent increase in the bond's yield. Overall, in spite of an active short-selling activity around auctions, there is no evidence that short-sellers predict or interpret auction outcomes better than the market.
Do Prices Reflect Collateral Value?
ABSTRACT: A low-repo-rate bond is more expensive than an otherwise identical bond: The price difference is equal to the interest saved on cash loans when using the low repo-rate bond as collateral instead of the other bond (Duffie (1996)). Using 54 pairs of identical sovereign bonds over 2005-12, I study the link between prices and repo rates during the subprime crisis. I find that the no-arbitrage relationship between prices and repo rates in Duffie (1996) fares worse during the crisis. However, I find that low-repo-rate bonds have an 18.0% higher probability of being more expensive than identical high-repo-rate bonds during the crisis, compared to only 9.0% before the crisis. Overall, while there are high limits of arbitrage, prices and repo rates feature larger co-movements during the crisis, likely due to market-making and liquidity shocks.
Presented at the 32nd International Conference of the French Finance Association; 20th ACPR Liquidity & Systematic Risk