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Macro News, Riskfree Rates, and the Intermediary

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Author Info
Albert J. Menkveld () (VU University, Amsterdam)
Asani Sarkar () (NY FED)
Michel van der Wel () (VU University, Amsterdam)
Abstract

Signed customer order flow correlates with permanent price changes in equity and nonequity markets. We exploit macro news events in the 30Y treasury futures market to identify causality from customer flow to riskfree rates. We remove the positive feedback trading part and establish that, in the 15 minutes subsequent to the news, intermediaries rely on customer orders to determine a substantial part of the announcement's effect on riskfree rates, i.e. one-third relative to the instantaneous effect. They appear to benefit from privately observing informed customers, as, in the cross-section, their own-account trade profitability correlates with access to customer flow, controlling for volatility, competition, and the macro ``surprise''.

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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 07-086/2.

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Date of creation: 06 Nov 2007
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Handle: RePEc:dgr:uvatin:20070086

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Related research
Keywords: discount rate macroeconomic announcements customer order flow intermediary treasury futures

Find related papers by JEL classification:
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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    Other versions:
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  16. Ederington, Louis H & Lee, Jae Ha, 1993. " How Markets Process Information: News Releases and Volatility," Journal of Finance, American Finance Association, vol. 48(4), pages 1161-91, September. [Downloadable!] (restricted)
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  18. Hasbrouck, Joel & Seppi, Duane J., 2001. "Common factors in prices, order flows, and liquidity," Journal of Financial Economics, Elsevier, vol. 59(3), pages 383-411, March. [Downloadable!] (restricted)
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