Conference Agenda

This study analyzes information production and trading behavior of banks with lending relationships. We combine trade-by-trade supervisory data and credit-registry data to examine banks' proprietary trading in borrower stocks around a large number of corporate events. We find that relationship banks build up positive (negative) trading positions in the two weeks before events with positive (negative) news, even when these events are unscheduled, and unwind positions shortly after the event. This trading pattern is more pronounced when banks are likely to possess private information about their borrowers and cannot be explained by specialized expertise in certain industries or firms. The results suggest that banks' lending relationships inform their trading and underscore the potential for conflicts of interest in universal banking - a prominent concern in the regulatory debate for a long time. Our analysis also illustrates how combining large data sets can enhance the supervision of markets and financial institutions.

We investigate the ECB’s main informal communication channel, namely private bilateral meetings of ECB Executive Board members with market participants. These meetings are frequent with some institutional investors meeting ECB board members almost every quarter, decreased in number after meeting calendars had to be disclosed publicly and are highly susceptible to a nationality bias. Using trade-level data from Germany, we find that banks build up long positions in equities and interest rate futures after meeting ECB board members and before the ECB announces expansionary monetary policy decisions. In line with this, we find that banks report higher trading profits in quarters where they met ECB board members. While our results suggest that the ECB’s informal communication indeed conveys meaningful information to the market, they raise concerns about neutrality of the ECB’s communication policy.

Can retail investors on social media platforms effectively target hedge fund short positions? We show that the disclosure of hedge fund short positions drives social media activity on WallStreetBets. Social media activity in turn precipitates price increases for heavily shorted stocks. In line with a causal interpretation, the impact of social media on stock returns manifests around the publication dates for short sales, but not around the settlement dates, and attenuates during trading restrictions imposed by Robinhood. The resultant short squeezes hurt hedge funds, which respond by shorting less aggressively, leading to prolonged overpricing in the stock market.