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The Quality of the Italian Treasury Bond Market, Asymmetric Information and Transaction Costs

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  • Stefania ALBANESI
  • Barbara RINDI

Abstract

This paper analyzes the microstructure of the Italian secondary bond market and of the effects of the 1994 reform and of the introduction of anonymity in 1997. Based on a microstructure model of price formation, we evaluate the relevance of asymmetric information and other microstructure effects, by estimating the VAR representation of the model. We find that market quality improves over time, which we interpret as resulting from the 1994 reform. This is captured both by decreased first order return autocorrelation and by improvement of our market quality indicators. The introduction of anonymity substantially reduces order fragmentation by investors trying to avoid free-riding by less sophisticated traders. No significant evidence of asymmetric information is found.

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Bibliographic Info

Article provided by ENSAE in its journal Annals of Economics and Statistics.

Volume (Year): (2000)
Issue (Month): 60 ()
Pages: 1-19

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Handle: RePEc:adr:anecst:y:2000:i:60:p:01

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Cited by:
  1. Cheung, Yiu Chung & de Jong, Frank & Rindi, Barbara, 2004. "Trading European Sovereign Bonds: The Microstructure of the MTS Trading Platforms," CEPR Discussion Papers 4285, C.E.P.R. Discussion Papers.
  2. Foucault, Thierry & Moinas, Sophie & Theissen, Erik, 2004. "Does Anonymity Matter in Electronic Limit Order Markets?," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 3, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  3. Calcagno, R. & Lovo, S.M., 2002. "Market Efficiency and Price Formation When Dealers are Asymmetrically Informed," Discussion Paper 2002-42, Tilburg University, Center for Economic Research.
  4. Caporale, Guglielmo Maria & Girardi, Alessandro, 2013. "Price discovery and trade fragmentation in a multi-market environment: Evidence from the MTS system," Journal of Banking & Finance, Elsevier, vol. 37(2), pages 227-240.
  5. Coluzzi, Chiara & Ginebri, Sergio & Turco, Manuel, 2008. "Measuring and Analyzing the Liquidity of the Italian Treasury Security Wholesale Secondary Market," Economics & Statistics Discussion Papers esdp08044, University of Molise, Dept. EGSeI.
  6. Chris D'Souza & Ingrid Lo & Stephen Sapp, 2007. "Price Formation and Liquidity Provision in Short-Term Fixed Income Markets," Working Papers 07-27, Bank of Canada.
  7. Alessandro Girardi, 2008. "The Informational Content of Trades on the EuroMTS Platform," ISAE Working Papers 97, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).
  8. LOVO, Stefano M. & CALCAGNO, R., 2001. "Market efficiency and Price Formation when Dealers are Asymmetrically Informed," Les Cahiers de Recherche 737, HEC Paris.

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