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Under pressure: market conditions and stress

Author

Listed:
  • Iñaki Aldasoro
  • Peter Hördahl
  • Sonya Zhu

Abstract

When financial markets come under pressure, vital functions such as the efficient allocation of capital and price formation become impaired1. It is therefore important to enhance the monitoring and analysis of market conditions, in particular events that may put pressure on authorities to intervene. We introduce market conditions indicators (MCIs) for each of three key market segments: the US Treasury and US money markets, and the foreign exchange market centred around the US dollar. Our daily MCIs reflect market volatility, illiquidity and deviations from standard no-arbitrage conditions. They capture well known episodes of market turmoil. We show that it is in some cases possible to identify conditions that point to a heightened risk of future market stress months ahead of the event.

Suggested Citation

  • Iñaki Aldasoro & Peter Hördahl & Sonya Zhu, 2022. "Under pressure: market conditions and stress," BIS Quarterly Review, Bank for International Settlements, September.
    • Handle: RePEc:bis:bisqtr:2209c
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    References listed on IDEAS

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    Cited by:

    1. Matteo Aquilina & Andreas Schrimpf & Karamfil Todorov, 2023. "CP and CDs markets: a primer," BIS Quarterly Review, Bank for International Settlements, September.

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    More about this item

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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