The Demand for Safe Assets

Filippo Cavaleri, Angelo Ranaldo and Enzo Rossi
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Filippo Cavaleri: University of Chicago - Booth School of Business; University of Chicago - Department of Economics

No 24-110, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: This paper examines how heterogeneity in investment horizons determines the demand for safe assets, bidding strategies in auctions, and post-auction price dynamics. We model a uniformprice double auction with resale where long-term investors hold assets to maturity, while dealer banks distribute the asset in secondary markets. Pure private (common) values emerge when only long-term investors (dealers) participate. Using unique data on Swiss Treasury bond auctions revealing bidders' identities, our empirical findings support key predictions: (1) substantial heterogeneity in demand schedules, with steeper demand curves for dealer banks; (2) Dealer banks' demand becomes steeper with increased demand risk and bid dispersion; and (3) demand elasticity positively predicts post-auction returns.

Keywords: auction; asset demand; safe asset; private and common values; government bonds (search for similar items in EconPapers)
JEL-codes: D44 D82 G12 G14 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2024-12
New Economics Papers: this item is included in nep-des and nep-mac
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https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5061707 (application/pdf)

Related works:
Working Paper: The demand for safe assets (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp24110

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