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- Publisher
- Oxford University Press
- Copyright
- Copyright © 2021 Society for Financial Studies
- ISSN
- 2045-9920
- eISSN
- 2045-9939
- DOI
- 10.1093/rapstu/raab011
- Publisher site
- See Article on Publisher Site
Abstract
Abstract Market prices are noisy signals of economic fundamentals. In a two-period model, we show that if the central bank uses market prices as guidance for intervention, large, strategic investors who benefit from high prices would depress market prices to induce a market-supportive intervention. Stronger anticipated interventions lead to deeper price depressions preintervention and sharper price reversals post- intervention. The central bank intervention harms strategic investors even though it is the investors who tried to mislead the central bank. The model predicts a V-shaped price pattern around central bank interventions, consistent with recent evidence. (JEL G14, G18) This content is only available as a PDF. © The Author 2020. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please email: journals.permissions@oup.com This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/open_access/funder_policies/chorus/standard_publication_model)
Journal
The Review of Asset Pricing Studies – Oxford University Press
Published: Apr 27, 2021