The Market Microstructure of Central Bank Bond Purchases

Schlepper, Kathi; Hofer, Heiko; Riordan, Ryan and Schrimpf, Andreas (2020): The Market Microstructure of Central Bank Bond Purchases. In: Journal of Financial and Quantitative Analysis, Vol. 55, No. 1: pp. 193-221

Abstract

We study quantitative easing (QE) policies from a microstructure perspective, drawing on intraday transaction-level data for German bonds (purchased under the Eurosystem’s QE program). An initial analysis of purchase decisions reveals that portfolio managers consider liquidity and the scarcity of securities in repo markets. Suggestive of significant flow effects, we detect price impacts of purchases at high and low frequencies. We find the impact on market liquidity and functioning to be ambiguous. A higher purchase volume lowers transaction costs but has an adverse impact on order-book depth. The price impact varies with market conditions and is higher for more illiquid bonds.

• Item Type: Journal article
• Faculties: Munich School of Management > Institute for Financial Innovation and Technology
• Subjects: 300 Social sciences > 330 Economics
• Language: English