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Research Seminar: The Greenspan Put

Research Seminar: The Greenspan Put

Nazarbayev University Graduate School of Business invites you to the Research Seminar titled "The Greenspan Put" by Dr. Valerio Potì

Abstract

We look at the effects of monetary policy on the stock market and market participants’ expectations through the lens of the equity option market. Options permit us to distinguish the effect of monetary policy on the cost of capital from its effect on market expectations about the future payoffs to equity investors. Given the difficulties in identifying monetary policy stance, we use several distinct approaches, such as natural language processing of FOMC minutes, regime switching models, and deviations from Taylor Rule. We address reverse causality using instrumental variables methods. We find that, with loose Fed monetary policy, traded equity put (call) options are significantly cheaper (more expensive) versus with tight monetary policy. We interpret this as a manifestation of the “Greenspan Put”. Accommodative monetary policy also creates a moral hazard because out of the money call options exhibit higher prices. We find some evidence that the effect of Fed policy on option prices reflects an expectation that the Fed will support the stock market even beyond the extent to which the real economy may need support.

Area: Finance

Time: 6 pm - 7 pm

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Date:

Wednesday, May 12, 2021

Time:

18:00

Location:

ZOOM

Speaker

Valerio Potì

Professor of Finance

Valerio is Professor of Finance in the Business School of University College Dublin, where he teaches portfolio and risk management and Banking & Finance. He is also a visiting professor of Econometrics in the University of Bari in Italy. He was previously in Dublin City University, where he taught courses on quantitative finance and risk modelling, led the development of the renewed M.Sc. in Finance and was head of Economics, Finance and Entrepreneurship. He graduated in Banking and Finance from Bocconi University Milan and gained a PhD in Finance from Trinity College Dublin, while also visiting the Finance department of New York University Stern Business School, where he worked as an International Visiting Research Scholar on the study of currency markets and financial econometrics with Professor Richard Levich. His research interests include asset pricing, performance attribution, market efficiency, behavioural finance, financial econometrics, corporate finance and SMEs financing and, more recently, digital finance and financial data science. His research has been published in International peer reviewed journals such as Management Science, the International Journal of Forecasting, the Journal of Banking and Finance, the Journal of International Money and Finance, European Financial Management, and he has contributed to practitioner-oriented books on portfolio and risk management. He is the Main Proposer and co-Chair of the H2020 COST Action "Fintech and Artificial Intelligence in Finance - Towards a transparent financial industry" (CA19130) and a funded principal investigator on the Coordination and Support Action “FIN-TECH: a knowledge exchange platform for FINancial TECHnology risk management”, which are two large-scale research projects on FinTech and Financial Data Science involving a very large network of universities, companies and regulators. He is a founding associate editor of the peer-reviewed scientific journal Digital Finance (Springer, https://www.springer.com/journal/42521). He has held visiting appointments at the European University Institute, New York University Stern School of Business, Nazarbayev University Graduate School of Business, Cattolica University at Piacenza. He also engages in consulting activities on risk and performance attribution and on issues related to the usage of derivatives to generate economic value. In the past, he taught International Finance at Queen's University Belfast and, before moving to academia, he worked as an equity option market maker on the Milan derivatives exchange and was the head of the Financial Engineering desk of the Dublin subsidiary of Banca Monte dei Paschi di Siena.