Investor behavior around targeted liquidity announcements

Giovanni Cardillo, Enrico Onali, Salvatore Perdichizzi*

*Corresponding author for this work

Research output: Contribution to journalArticle (Academic Journal)peer-review

Abstract

We exploit announcements related to targeted longer-term financing operations (TLTROs) as exogenous shocks in investor perceptions to test recent theories on bank funding liquidity (Ahnert et al., 2019; Liu, 2015). We find that banks with high derivative holdings and more exposed to sovereign credit risk respond better to the announcements, consistent with the view that lower funding costs benefit banks with higher asset encumbrance and located in more vulnerable Eurozone countries. The TLTRO announcements also elicit reductions in short positions on bank stocks relative to stocks of non-financial corporations without impairing their market liquidity. Robustness tests rule out that our results are driven by confounding events and anticipation effects. Placebo tests confirm that the TLTRO announcements are driving the estimated price reactions and changes in short positions.

Original languageEnglish
Article number101275
JournalBritish Accounting Review
Volume56
Issue number6
Early online date14 Nov 2023
DOIs
Publication statusPublished - 26 Sept 2024

Bibliographical note

Publisher Copyright:
© 2023 The Authors

Research Groups and Themes

  • AF Financial Markets
  • AF Banking

Keywords

  • Banks
  • Liquidity
  • Price reaction
  • Short-selling

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