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Economic News and the Impact of Trading on Bond Prices

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Author Info
T. Clifton Green (Goizueta Business School, Emory University)
Abstract

This paper studies the impact of trading on government bond prices surrounding the release of macroeconomic news. The results show a significant increase in the informational role of trading following economic announcements, which suggests the release of public information increases the level of information asymmetry in the government bond market. The informational role of trading is greater after announcements with a larger initial price impact, and the relation is associated with the surprise component of the announcement and the precision of the public information. The results provide evidence that government bond order flow reveals fundamental information about riskless rates. Copyright 2004 by The American Finance Association.

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Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 59 (2004)
Issue (Month): 3 (06)
Pages: 1201-1234
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Handle: RePEc:bla:jfinan:v:59:y:2004:i:3:p:1201-1234

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Koski, Jennifer Lynch & Michaely, Roni, 2000. "Prices, Liquidity, and the Information Content of Trades," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 13(3), pages 659-96.
  2. Michael J. Fleming & Eli M. Remolona, 1997. "What moves the bond market?," Research Paper 9706, Federal Reserve Bank of New York. [Downloadable!]
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  3. Sandas, Patrik, 2001. "Adverse Selection and Competitive Market Making: Empirical Evidence from a Limit Order Market," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 14(3), pages 705-34.
  4. Hasbrouck, Joel, 1991. " Measuring the Information Content of Stock Trades," Journal of Finance, American Finance Association, vol. 46(1), pages 179-207, March. [Downloadable!] (restricted)
  5. Martin D. D. Evans & Richard K. Lyons, 2002. "Order Flow and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 110(1), pages 170-180, February. [Downloadable!] (restricted)
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  6. Ananth Madhavan & Matthew Richardson & Mark Roomans, 1996. "Why Do Security Prices Change? A Transaction-Level Analysis of NYSE Stocks," New York University, Leonard N. Stern School Finance Department Working Paper Seires 96-34, New York University, Leonard N. Stern School of Business-.
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  7. Lyons, Richard K., 1995. "Tests of microstructural hypotheses in the foreign exchange market," Journal of Financial Economics, Elsevier, vol. 39(2-3), pages 321-351. [Downloadable!] (restricted)
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  8. H. Henry Cao & Richard K. Lyons & Martin D.D. Evans, 2003. "Inventory Information," NBER Working Papers 9893, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Michael J. Fleming, 2001. "Measuring treasury market liquidity," Staff Reports 133, Federal Reserve Bank of New York. [Downloadable!]
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  10. Pierluigi Balduzzi & Edwin J. Elton & T. Clifton Green, 1997. "Economic News and the Yield Curve: Evidence from the U.S. Treasury Market," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-005, New York University, Leonard N. Stern School of Business-.
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  11. Vitale, Paolo, 1998. "Two months in the life of several gilt-edged market makers on the London Stock Exchange," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 8(3-4), pages 299-324, December. [Downloadable!] (restricted)
  12. Takatoshi Ito Richard K. Lyons and Michael T. Melvin., 1997. "Is There Private Information in the FX Market? The Tokyo Experiment," Research Program in Finance Working Papers RPF-270, University of California at Berkeley. [Downloadable!]
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  13. Martin D. D. Evans, 2001. "FX Trading and Exchange Rate Dynamics," NBER Working Papers 8116, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Massa, Massimo & Simonov, Andrei, 2003. "Reputation and interdealer trading: a microstructure analysis of the Treasury Bond market," Journal of Financial Markets, Elsevier, vol. 6(2), pages 99-141, April. [Downloadable!] (restricted)
  15. Admati, Anat R & Pfleiderer, Paul, 1991. "Sunshine Trading and Financial Market Equilibrium," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 4(3), pages 443-81. [Downloadable!] (restricted)
  16. Glosten, Lawrence R. & Milgrom, Paul R., 1985. "Bid, ask and transaction prices in a specialist market with heterogeneously informed traders," Journal of Financial Economics, Elsevier, vol. 14(1), pages 71-100, March. [Downloadable!] (restricted)
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  17. Mark J. Flannery & Aris A. Protopapadakis, 2002. "Macroeconomic Factors Do Influence Aggregate Stock Returns," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 15(3), pages 751-782.
  18. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November. [Downloadable!] (restricted)
  19. Michael J. Fleming & Eli M. Remolona, 1999. "Price Formation and Liquidity in the U.S. Treasury Market: The Response to Public Information," Journal of Finance, American Finance Association, vol. 54(5), pages 1901-1915, October. [Downloadable!] (restricted)
  20. Karpoff, Jonathan M, 1986. " A Theory of Trading Volume," Journal of Finance, American Finance Association, vol. 41(5), pages 1069-87, December. [Downloadable!] (restricted)
  21. Stoll, Hans R, 1989. " Inferring the Components of the Bid-Ask Spread: Theory and Empirical Tests," Journal of Finance, American Finance Association, vol. 44(1), pages 115-34, March. [Downloadable!] (restricted)
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