The Term Structure of Market Fear: Central Bank Responses to Covid-19

   Bevilacqua, M., L. Brandl-Cheng, J. Daníelsson, L. Ergun, A. Uthemann, and J.-P. Zigrand (2020). The term structure of market fear: Central bank responses to Covid-19.

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We study the impact of five key Fed policy responses to the Covid-19 crisis on the stock market's fear of loss and variability. Using a unique global dataset of option prices to construct the term structures of fear, up to 10 years into the future, we find that FX swap lines have the most decisive impact on market fear, but only on the US and countries with access to the swaps. Liquidity support and macroprudential policies had a smaller but still significant impact, while policies aimed to support the wider economy did not affect fear. The critical importance of USD swap lines further lends support to the view that the USD is a global risk factor.

 author =  {Mattia Bevilacqua and  Lukas Brandl-Cheng and J{\'o}n
                 Dan{\'\i}elsson  and Lerby Ergun and  Andreas
                 Uthemann and Jean-Pierre Zigrand},
 title =   {The Term Structure of Market Fear: Central Bank Responses
                 to {Covid-19}},
 year =    2020,