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The Demand for Safe Assets

Author

Listed:
  • Filippo Cavaleri

    (University of Chicago - Booth School of Business; University of Chicago - Department of Economics)

  • Angelo Ranaldo

    (University of Basel - Faculty of Business and Economics; Swiss Finance Institute; University of St. Gallen)

  • Enzo Rossi

    (Swiss National Bank; University of Zurich)

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.

Suggested Citation

  • Filippo Cavaleri & Angelo Ranaldo & Enzo Rossi, 2024. "The Demand for Safe Assets," Swiss Finance Institute Research Paper Series 24-110, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp24110
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    More about this item

    Keywords

    auction; asset demand; safe asset; private and common values; government bonds;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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