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Central Clearing and Asset Prices

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Author Info

  • Albert J. Menkveld

    (VU University Amsterdam)

  • Emiliano Pagnotta

    (NYU Stern School of Business, United States of America)

  • Marius A. Zoican

    (VU University Amsterdam, Tinbergen Institute and Duisenberg School of Finance)

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    Abstract

    We investigate the effects of introducing a central clearing counterparty (CCP) on securities prices by adopting as an experimental construct the 2009 CCP reform in three Nordic markets. We find that, relative to other European economies, these countries experience market-adjusted equity returns of -1.08% per month during a 16-month announcement window. We also find negative effects on price-earnings ratios. The decrease in prices is less pronounced for stocks with low number of counterparties and,consistent with the margin-CAPM, more pronounced for stocks with higher margins. Our results suggest that introducing a CCP may have unintended negative consequences for public corporations.

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    Bibliographic Info

    Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 13-181/IV/DSF67.

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    Date of creation: 08 Nov 2013
    Date of revision:
    Handle: RePEc:dgr:uvatin:20130181

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    Web page: http://www.tinbergen.nl

    Related research

    Keywords: clearing; asset prices; margins; liquidity;

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    References

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    1. Bruno Biais & Florian Heider & Marie Hoerova, 2012. "Clearing, Counterparty Risk, and Aggregate Risk," IMF Economic Review, Palgrave Macmillan, vol. 60(2), pages 193-222, July.
    2. Acharya, Viral V & Pedersen, Lasse Heje, 2004. "Asset Pricing with Liquidity Risk," CEPR Discussion Papers 4718, C.E.P.R. Discussion Papers.
    3. Markus K. Brunnermeier & Lasse Heje Pedersen, 2009. "Market Liquidity and Funding Liquidity," Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2201-2238, June.
    4. Pradeep Dubey & John Geanakoplos & Martin Shubik, 2001. "Default and Punishment in General Equilibrium," Cowles Foundation Discussion Papers 1304, Cowles Foundation for Research in Economics, Yale University.
    5. Nicolae Gârleanu & Lasse Heje Pedersen, 2011. "Margin-Based Asset Pricing and Deviations from the Law of One Price," NBER Working Papers 16777, National Bureau of Economic Research, Inc.
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    7. Coen-Pirani, Daniele, 2005. "Margin requirements and equilibrium asset prices," Journal of Monetary Economics, Elsevier, vol. 52(2), pages 449-475, March.
    8. Jonah B. Gelbach & Doug Miller, 2009. "Robust Inference with Multi-way Clustering," Working Papers 99, University of California, Davis, Department of Economics.
    9. William M. Gentry & Deen Kemsley & Christopher J. Mayer, 2001. "Dividend Taxes and Share Prices: Evidence from Real Estate Investment Trusts," NBER Working Papers 8486, National Bureau of Economic Research, Inc.
    10. Daniel Heller & Nicholas Vause, 2012. "Collateral requirements for mandatory central clearing of over-the-counter derivatives," BIS Working Papers 373, Bank for International Settlements.
    11. Chowdhry, Bhagwan & Nanda, Vikram, 1998. "Leverage and Market Stability: The Role of Margin Rules and Price Limits," The Journal of Business, University of Chicago Press, vol. 71(2), pages 179-210, April.
    12. Keim, Donald B., 1983. "Size-related anomalies and stock return seasonality : Further empirical evidence," Journal of Financial Economics, Elsevier, vol. 12(1), pages 13-32, June.
    13. Andy Naranjo & M. Nimalendran & Mike Ryngaert, 2000. "Time Variation of Ex-Dividend Day Stock Returns and Corporate Dividend Capture: A Reexamination," Journal of Finance, American Finance Association, vol. 55(5), pages 2357-2372, October.
    14. Robert R. Bliss & Robert Steigerwald, 2006. "Derivatives clearing and settlement: a comparison of central counterparties and alternative structures," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 22-29.
    15. Peter Blair Henry, 2000. "Stock Market Liberalization, Economic Reform, and Emerging Market Equity Prices," Journal of Finance, American Finance Association, vol. 55(2), pages 529-564, 04.
    16. Bernanke, Ben S, 1990. "Clearing and Settlement during the Crash," Review of Financial Studies, Society for Financial Studies, vol. 3(1), pages 133-51.
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