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Supply and demand shifts of shorts before Fed announcements during QE1–QE3

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  • McInish, Thomas
  • Neely, Christopher J.
  • Planchon, Jade

Abstract

Cohen et al. (2007), find that shifts in the demand curve for shorting predict negative stock returns. We use their approach to examine supply and demand changes at the time of the Federal Open Market Committee (FOMC) announcements. We show that shifts in the demand for borrowing Treasuries and agencies predict quantitative easing (QE). A reduction in the quantity demanded at all points along the demand curve predicts expansionary QE announcements.

Suggested Citation

  • McInish, Thomas & Neely, Christopher J. & Planchon, Jade, 2021. "Supply and demand shifts of shorts before Fed announcements during QE1–QE3," Economics Letters, Elsevier, vol. 200(C).
    • Handle: RePEc:eee:ecolet:v:200:y:2021:i:c:s016517652030478x
    DOI: 10.1016/j.econlet.2020.109718
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    References listed on IDEAS

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    1. Karl B. Diether & Kuan-Hui Lee & Ingrid M. Werner, 2009. "Short-Sale Strategies and Return Predictability," Review of Financial Studies, Society for Financial Studies, vol. 22(2), pages 575-607, February.
    2. Engelberg, Joseph E. & Reed, Adam V. & Ringgenberg, Matthew C., 2012. "How are shorts informed?," Journal of Financial Economics, Elsevier, vol. 105(2), pages 260-278.
    3. Asquith, Paul & Au, Andrea S. & Covert, Thomas & Pathak, Parag A., 2013. "The market for borrowing corporate bonds," Journal of Financial Economics, Elsevier, vol. 107(1), pages 155-182.
    4. Lauren Cohen & Karl B. Diether & Christopher J. Malloy, 2007. "Supply and Demand Shifts in the Shorting Market," Journal of Finance, American Finance Association, vol. 62(5), pages 2061-2096, October.
    5. Michael J. Aitken & Alex Frino & Michael S. McCorry & Peter L. Swan, 1998. "Short Sales Are Almost Instantaneously Bad News: Evidence from the Australian Stock Exchange," Journal of Finance, American Finance Association, vol. 53(6), pages 2205-2223, December.
    6. Ekkehart Boehmer & Charles M. Jones & Xiaoyan Zhang, 2008. "Which Shorts Are Informed?," Journal of Finance, American Finance Association, vol. 63(2), pages 491-527, April.
    7. Hendershott, Terrence & Kozhan, Roman & Raman, Vikas, 2020. "Short Selling and Price Discovery in Corporate Bonds," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 55(1), pages 77-115, February.
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    More about this item

    Keywords

    Quantitative easing; Treasury bond short interest; Monetary policy; Large-scale asset purchases (LSAP); Agency securities; Treasury securities;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G1 - Financial Economics - - General Financial Markets
    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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