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Price discovery in the Italian sovereign bonds market: the role of order flow

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  • Alessandro Girardi

    ()
    (National Institute of Statistics (ISTAT))

  • Claudio Impenna

    ()
    (Bank of Italy)

Abstract

This paper analyses the price discovery process and the informational role of trading in the Italian wholesale secondary markets for Treasury bonds: the B2B MTS cash and the B2C BondVision trading venues. Using daily data for a representative set of fixed rate government bonds over the period January 2007 - February 2012, we find that the B2C dealer-to-customer market contributes to the process of price formation to a greater extent than the B2B interdealer platform. The informational role of trading is found to be considerable: order flow is a key variable in the process of price formation and appears to continuously act on a cross market basis. Moreover, the explanatory role of order flow turns out to be stronger when liquidity conditions are poorer.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 906.

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Date of creation: Apr 2013
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Handle: RePEc:bdi:wptemi:td_906_13

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Keywords: bonds markets; price discovery; order flow; market microstructure; financial crisis;

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