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Investor behavior under market stress:evidence from the Italian sovereign bond market

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  • Onofrio Panzarino

    (Bank of Italy)

Abstract

Drawing on data from primary dealers, this analysis compares how different types of investors in Italian government bonds react to changes in past yields, and provides new evidence on the role played by non-banks, alongside banks. The analysis covers the seven-year period 2014 2020, which includes episodes of severe market stress, such as the 2018 Italian market turmoil and the outbreak of the COVID-19 crisis in March 2020. The evidence shows that investors’ reactions to past yield changes differ consistently based on the sector to which they belong. Asset managers and hedge funds tend to respond procyclically to yield movements, i.e. they buy securities when prices rise (and vice versa), whereas banks do not, and thus they play a more stabilizing role on the market. Other non-bank investors, such as insurance companies, pension funds and non-financial entities, tend to have a muted response to past yield changes.

Suggested Citation

  • Onofrio Panzarino, 2023. "Investor behavior under market stress:evidence from the Italian sovereign bond market," Temi di discussione (Economic working papers) 33, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:misp_033_23
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    File URL: https://www.bancaditalia.it/pubblicazioni/mercati-infrastrutture-e-sistemi-di-pagamento/approfondimenti/2023-033/N.33-MISP.pdf
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    More about this item

    Keywords

    government bonds; investors’ behavior; market functioning; market liquidity;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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