Disagreement and Asset Pricing: Evidence from Prediction Markets
with Simeng Li
Draft available upon request
This paper utilizes transaction-level data from Polymarket to construct novel measures of investor disagreement and analyze their impact on asset prices. We demonstrate that the composition of disagreement matters: disagreement among incumbent traders strongly predicts subsequent price movements and U.S. Treasury convenience yields around major announcements, whereas disagreement among new entrants is significantly less informative. Furthermore, a broader market-level disagreement index extracted from prediction markets holds robust predictive power for U.S. Treasury yields, emphasizing that both the level and source of disagreement are priced into sovereign debt markets.
Presentations: Future Finance Fest (scheduled), Bayes Business School*.
When Supply Becomes a Demand Signal: Evidence from UK Gilt Issuance
Draft available upon request
For decades, research on sovereign-debt issuance has centred on whether uniform- or discriminatory-price auctions best minimise government borrowing costs. This paper argues that the debate may have overlooked subtle design features that can meaningfully affect outcomes. I study the United Kingdom’s Post-Auction Option Facility (PAOF)—introduced in 2009—which allows the Debt Management Office, after observing the bid book, to decide whether to activate the facility and sell an additional tranche to winners at the average accepted price. Using the universe of gilt auctions from 1998 to 2017, I find three main results. First, primary dealers bid more aggressively after the PAOF’s introduction. Second, the mechanism reduced total fiscal cost by roughly £1.2 billion. Third, the DMO’s activation decision—announced with results—moves secondary prices in opposite directions: activation raises prices (lowers yields), while non-activation depresses them, consistent with the model’s signaling channel. Together, these findings show that even small, responsive-issuance mechanisms can enhance information revelation and materially lower sovereign borrowing costs without altering the core auction design.
Presentations: SWFA, LSE, International Finance Society Annual Meeting (HKU iCube, Poster), University of Naples Federico II.
Debt Demand Shocks and the Eroding Government Bond Convenience Yield
with Philippe Mueller, Andreas Schrimpf, and Dora Xia
Draft available upon request
This paper utilizes high-frequency transaction data around U.S. Treasury auctions to isolate pure demand shocks and analyze their impact on the sovereign convenience yield. Building on inelastic market theory and intermediary constraints, we document a "loss of uniqueness" channel: weak auction demand systematically compresses the safety premium of U.S. debt, both domestically and across international synthetic markets. These findings demonstrate that high-frequency demand flows, rather than just aggregate macroeconomic supply, play a persistent and crucial role in the pricing of global safe assets, particularly outside of Quantitative Easing regimes.
Presentations: HKMA (scheduled).