Knowledge that Transforms

By decomposing close-to-close mid-quote returns of ETFs into their overnight and intraday components, we find that the overnight return is significantly positive, whereas the intraday return is negative. This overnight–intraday return differential is ubiquitous across ETFs tracking different asset classes or assets located in different time zones. This phenomenon cannot be explained by differences in overnight and intraday risks, macroeconomic announcements, or information asymmetry. Instead, our analysis reveals that the return pattern is primarily driven by demand shocks from retail investors and limited supply from arbitrageurs. These results indicate that the convenience of buying ETFs during intraday trading hours carries a hidden cost to investors.

We document a smaller expansion of the negative CDS-bond basis and lower selling pressure during the Covid crisis for bonds issued by firms with high environmental and social (E&S) scores, relative to bonds from low E&S firms. This pattern is consistent with lower investor outflows from sustainability focused funds rather than fund managers discriminating among which bonds to sell. Our results suggest that the relative performance of high and low E&S bonds during a crisis is influenced not only by shifts in firm fundamentals, but also by non-fundamental factors such as investor preferences and trading behaviour.

We study the effects of alternative price-cap mechanisms applied to the European gas market on price and volatility dynamics. Within a multivariate framework with dynamic correlations, we simulate counterfactual policy regimes and trace their spillovers to energy, agricultural, metal, and equity markets. We focus on the European natural gas market from January 2013 to October 2023. The results show the following. First, a cap rule based on a fixed price mechanism consistently lowers energy prices, even if volatility can be high. Second, the gas price cap measure adopted by the European Commission and currently enforced is more conservative in terms of the probability of activation. Third, a mechanism directly related to gas price volatility performs better in containing energy prices and taming volatility spillover effects in commodity and equity markets.