QCGBF Virtual Seminar Series: Andreas Schrimpf: Constrained Dealers and Market Efficiency

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About the Event

The Qatar Centre for Global Banking & Finance welcomes Andreas Schrimpf (Bank for International Settlements) to present this virtual seminar on 'Constrained Dealers and Market Efficiency'.

Paper Abstract

We analyse how constraints on dealers’ risk-bearing capacity affect market efficiency in the foreign exchange (FX) market. Dealers support market efficiency by accommodating their customers’ trading demands through elastic liquidity provision in normal times but when they face constraints their elasticity of liquidity provision weakens. Episodes of tight dealer constraints – for instance, due to high leverage, Value-at-Risk, and funding costs – in turn go hand in hand with price inefficiencies due to law of one price deviations and elevated trading costs. We rationalise our novel empirical findings with a tractable model that sheds light on the key mechanisms of how market efficiency can deteriorate when dealers are more constrained.

About the Speaker

Andreas Schrimpf is the head of the financial markets unit in the Monetary and Economic Department of the Bank for International Settlements. He joined the BIS in early 2011. Prior to his current position, he served for several years as Secretary to the BIS Markets Committee (May 2016-September 2020). In this context, he coordinated international work in the central bank community on, inter alia, the impact of large central bank balance sheets on market functioning, the FX Triennial Survey and the monitoring of fast-paced electronic markets. Previously, he was a post-doctoral researcher at Aarhus University (2009-11) and a researcher at the Centre for European Economic Research (ZEW) in Mannheim (2005-09). He obtained his doctorate from the University of Tübingen in 2009.

His research in recent years has focused on the role of intermediaries in financial markets, financial drivers of exchange rates and the intersection of monetary policy and financial markets. Andreas' work is published in leading academic journals, including the Journal of Finance, Review of Financial Studies, Journal of Financial Economics and American Economic Journal: Macroeconomics. Andreas is also a CEPR Research Affiliate.