Whose Asset Sales Matter?
IMF Working Papers, August 2, 2024
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- Whose Asset Sales Matter?
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Bibliographic details
- Authors: Rhys M. Bidder, Jamie Coen, Caterina Lepore, Laura Silvetri
- Published: August 2, 2024
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400287091.001
Overview
- Using novel data on bond trading in the UK, the authors develop a new measure of selling pressure that can be applied to any trader.
- Exogenous selling pressure in a bond is identified using traders’ sales of other, unrelated bonds.
- The study finds that the price impact of a sale depends on who is selling.
Key findings
- Sales by dealers and hedge funds generate significantly larger impacts than equally sized sales by other investors.
- The authors rationalise findings using a model of differentially informed investors.
- All else equal, results suggest that more attention should be devoted to risks to financial stability from these impactful sellers.
Methodology (summary)
- Novel UK bond trading data are used to construct a trader-level measure of selling pressure.
- Exogenous selling pressure is isolated by exploiting traders’ sales of other, unrelated bonds to identify pressure in a focal bond.
Interpretation and theoretical framework
- A model of differentially informed investors is used to rationalise why identical sale sizes have heterogeneous price impacts depending on the seller’s type (dealers, hedge funds, other investors).
Policy implications and recommendations
- Greater attention should be devoted to risks to financial stability arising from sellers whose sales generate large price impacts (notably dealers and hedge funds).
- Monitoring and macroprudential surveillance may need to account for heterogeneity in sellers’ impact on bond prices and liquidity.
Keywords and subjects (as provided)
- Asset and liability management, Bonds, Financial institutions, Hedge funds, Liquidity, Mutual funds, Sovereign bonds
- Keywords: asset sale, Bonds, financial stability, fire sales, fixed income, Hedge funds, liquidity, Mutual funds, noise trader, pressure measure, price impact, sales by dealer, Sovereign bonds, traders' sale
IMF Working Paper No. 2024/168.
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- Working Paper