Abstract:
The discussions protracted in this final thesis foster the empirical analysis of how liquidity behaves in capital markets from a systemic point of view, in particular the ultimate purpose focus on highlighting how different economic relations shape the features of the main liquidity-providing instruments currently available, which eventually determine how market makers operations are conducted in capital markets with crucial implications on financial stability. Triggering the need for an in depth evaluation of the current state of the economy are the behavioral adjustments taking place at interbank level following the ongoing and the historical monetary policy undertaken by the ECB which facing slow economic growth in mid’ 2010 started ultra-expansionary measures as Quantitative Easing developing a low yield environment giving birth to widespread ease of borrowing for credit institutions and excess liquidity in the market for nearly a decade; this ultra-loose policy eventually led to inflationary phenomena and to the current period of high volatility inducted by a sharp increase in interest rates, opening to a potential incoming recession in the near future. The specific analysis conducted throughout this final thesis will be centered on Italy’s secondary market data and will try to assess how the use of Repurchasing Agreements performed by market makers shapes market liquidity during different economic periods; in particular thanks to a very detailed MTS dataset ranging from 2020 to 2022, the evaluation will be protracted during a data frame exhibiting significant economic shocks as COVID 19 in 2020 and the first increase in central bank’s policy rate in years in 2022. After a brief theoretical introduction in the first paragraphs, which is devoted to summarize the main concepts around which previous liquidity research has been focusing and to highlight the main variables to be considered in the analysis, the empiric case will be centered on assessing the drivers affecting the behavior, as a metric for market liquidity, of quoted prices at interbank level (bidask spreads) relating to the main Italian government’s issues and will be carried over through the use of classic econometrics tools such as simple linear regressions and multiple regressions together with descriptive statistics.
