Financial markets

Dirk Schoenmaker, Jeffrey Wurgler, 03 August 2022

When pension giant ABP faced protests about its fossil fuel investment strategy, did it choose to exert pressure on oil companies or divest from them? Jeff Wurgler and Dirk Schoenmaker talk to Tim Phillips about how the finance sector can accelerate a green transition.

Phillipp Gnan, Maximilian Schleritzko, Maik Schmeling, Christian Wagner, 01 August 2022

Central banks around the globe face new challenges in the form of adverse supply shocks, rising inflation rates, and the consequential need to tighten monetary policy without causing dislocations in financial markets and the real economy. In addressing these, the accompanying communication of central banks is often seen to be as important as the actual policy actions. This column shows that market responses can be directly linked to topic-specific news revealed in the communication of central banks. 

Philipp Hartmann, Philippe Molitor, Annachiara Tanzarella, Bruun de Jong, 29 July 2022

Russia’s invasion of Ukraine added another one to a series of crises affecting Europe over the last decade and a half. This column finds that fragmentation of euro area financial markets has been relatively limited, as policymakers have benefitted from reforms after and experiences with past crises, European countries and authorities reacted with quite some unity, and direct financial exposures to Russia and Ukraine are relatively small. Cross-country divergences of euro area asset prices appear to have been particularly driven by bond markets and related to the countries with the greatest energy and financial exposures as well as to changes in economic uncertainty.

Antoine Didisheim, Serge Kassibrakis, Luciano Somoza, 21 July 2022

Since the onset of the Covid-19 crisis in 2020, the correlation between cryptocurrency and equities went from low and negative to consistently high and positive. This column proposes a new mechanism to explain this new relationship. With investor-level holdings from a bank offering both trading accounts and cryptocurrency wallets, it shows that retail investors’ net trading volumes of stocks and cryptocurrencies are highly positively correlated. Theoretically, this micro-level pattern translates into a cross-asset class correlation. Evidence suggests that the pattern emerged in March 2020, and that stocks preferred by crypto-traders exhibit a stronger correlation with Bitcoin.

Olivier Darmouni, Melina Papoutsi, 08 July 2022

Historically, only very large firms issued in the European corporate bond market. However, recent years have seen the entry of many new players: small, private, and unrated issuers. This column uses firm-level data to show these new players face different game dynamics. They are disconnected from aggregate market movements and still depend heavily on banks. A better understanding of the differences between new and more established corporate bond issuers could help identify policy implications for financial stability, capital markets development, and growth.

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