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Price discovery in government bond markets

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Author Info

  • Valseth, Siri

    ()
    (University of Stavanger)

Abstract

Price discovery in government bond markets is explored using Norwegian data including trades from both tiers of the market and dealer identities. The results show that while aggregate interdealer order flow explains one-fourth of daily yield changes, aggregate customer order flow has little explanatory power. Dealers are heterogeneously informed and appear to have different sources of information. While some dealers mainly rely on their customer trades, others appear to rely on skill in acquiring and interpreting other relevant information, suggesting that dealers play an independent role in the price discovery process.

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File URL: http://www1.uis.no/ansatt/odegaard/uis_wps_econ_fin/uis_wps_2011_3_valseth.pdf
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Bibliographic Info

Paper provided by University of Stavanger in its series UiS Working Papers in Economics and Finance with number 2011/3.

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Length: 38 pages
Date of creation: 06 Apr 2011
Date of revision:
Handle: RePEc:hhs:stavef:2011_003

Contact details of provider:
Postal: University of Stavanger, NO-4036 Stavanger, Norway
Web page: http://www.uis.no/research/economics_and_finance
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Related research

Keywords: Price Discovery; Microstructure; Government Bonds; Norway;

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References

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  1. Michael J. Fleming, 2001. "Measuring treasury market liquidity," Staff Reports 133, Federal Reserve Bank of New York.
  2. Sapp, Stephen G., 2002. "Price Leadership in the Spot Foreign Exchange Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 37(03), pages 425-448, September.
  3. Hasbrouck, Joel, 1991. " Measuring the Information Content of Stock Trades," Journal of Finance, American Finance Association, vol. 46(1), pages 179-207, March.
  4. Carol Osler & Alexander Mende & Lukas Menkhoff, 2010. "Price Discovery in Currency Markets," Working Papers 03, Brandeis University, Department of Economics and International Businesss School.
  5. Martin D.D. Evans & Richard K. Lyons, 2005. "Meese-Rogoff Redux: Micro-Based Exchange Rate Forecasting," NBER Working Papers 11042, National Bureau of Economic Research, Inc.
  6. Menkveld, Albert J. & Sarkar, Asani & Wel, Michel van der, 2012. "Customer Order Flow, Intermediaries, and Discovery of the Equilibrium Risk-Free Rate," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 47(04), pages 821-849, August.
  7. Martin D.D. Evans & Richard K. Lyons, 1999. "Order Flow and Exchange Rate Dynamics," NBER Working Papers 7317, National Bureau of Economic Research, Inc.
  8. T. Clifton Green, 2004. "Economic News and the Impact of Trading on Bond Prices," Journal of Finance, American Finance Association, vol. 59(3), pages 1201-1234, 06.
  9. Lee, Charles M C & Ready, Mark J, 1991. " Inferring Trade Direction from Intraday Data," Journal of Finance, American Finance Association, vol. 46(2), pages 733-46, June.
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Cited by:
  1. Alessandro Girardi & Claudio Impenna, 2013. "Price discovery in the Italian sovereign bonds market: the role of order flow," Temi di discussione (Economic working papers) 906, Bank of Italy, Economic Research and International Relations Area.

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