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

Onofrio Panzarino ()
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Onofrio Panzarino: Bank of Italy

No 33, Mercati, infrastrutture, sistemi di pagamento (Markets, Infrastructures, Payment Systems) from Bank of Italy, Directorate General for Markets and Payment System

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.

Keywords: government bonds; investors’ behavior; market functioning; market liquidity (search for similar items in EconPapers)
JEL-codes: G11 G12 G15 G20 G23 (search for similar items in EconPapers)
Date: 2023-05
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wpmisp:mip_033_23

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