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Price discovery in the round-the-clock U.S. Treasury market

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  • He, Yan
  • Lin, Hai
  • Wang, Junbo
  • Wu, Chunchi

Abstract

We evaluate the efficacy of price discovery in the round-the-clock U.S. Treasury market. Using a comprehensive intraday database, we explore informational role of trades over the 24-hour day. We find that information asymmetry is generally highest in the preopen period and lowest in the postclose period. Information asymmetry in the overnight period is comparable to that in the regular trading period. However, on days with macroeconomic announcements, information asymmetry peaks shortly after the news release at 8:30. Moreover, information asymmetry is higher on Monday morning and higher immediately before than after the open of U.S. Treasury futures trading. Although volume is low after hours and trading cost is relatively high, overnight trading generates significant price discovery. Results suggest that overnight trading activity is an important part of the Treasury price discovery process.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Intermediation.

Volume (Year): 18 (2009)
Issue (Month): 3 (July)
Pages: 464-490

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Handle: RePEc:eee:jfinin:v:18:y:2009:i:3:p:464-490

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Web page: http://www.elsevier.com/locate/inca/622875

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Keywords: Price discovery Asymmetric information Liquidity provision Variance decomposition After-hours trading;

References

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Cited by:
  1. Anne Opschoor & Michel van der Wel & Dick van Dijk & Nick Taylor, 2012. "On the Effects of Private Information on Volatility," CREATES Research Papers 2012-08, School of Economics and Management, University of Aarhus.
  2. Jiang, Christine X. & Likitapiwat, Tanakorn & McInish, Thomas H., 2012. "Information Content of Earnings Announcements: Evidence from After-Hours Trading," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 47(06), pages 1303-1330, December.
  3. Anne Opschoor & Michel van der Wel & Dick van Dijk & Nick Taylor, 2011. "On the Effects of Private Information on Volatility," Tinbergen Institute Discussion Papers 11-077/4, Tinbergen Institute.

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