IFin Seminar, Jean-Pierre Zigrand, London School of Economics "Covid19 Market Fears and remedial Fed policies"
Institute of Finance
Data: 13/11/2020 / 12:20 - 13:40
Speaker: Jean-Pierre Zigrand, London School of Economics
Title: "Covid19 Market Fears and remedial Fed policies"
Date: November 13, 2020
Time: 12:25 - 13:40
This paper studies the effect of different categories of Fed announcements on the fears of the stock market during the Covid crisis, especially the fear of loss (the quantiles of the risk-neutral distribution) and the fear of variability (the VIX indices corresponding to the risk-neutral expectations of future realised variance). By using intraday S\&P500 data, we identify the effect of the news contained in the announcement on the risk-neutral distributions of a number of stocks and indices. Different Fed policy announcements have different effects on the different fear measures of the different assets over different horizons. FX, liquidity to financial intermediaries and macropru announcements all lead to large economically and statistically significant reductions in the various fear measures over horizons from a day to 10 years. Interest rate and credit to households, businesses and to the public did little to assuage fears. We also outline how these policies differentially reduce fears across industries and horizons.