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Informed Trading in Parallel Bond Markets

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  • Paiardini, Paola

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Abstract

In this paper we investigate the presence of asymmetric information in the parallel trading of ten-year government fixed rate bonds (BTP) on two secondary electronic platforms: the business-to-business (B2B) MTS platform and the business-to-customer (B2C) BondVision one. The two platforms are typified by a different degree of transparency. We investigate whether the probability to encounter an informed trader on the less transparent market is higher than the corresponding probability on the more transparent one. Our results show that on BondVision, that is the less transparent platform, the probability of encountering an informed trader is higher. Finally we perform a series of tests to check the robustness of our estimates. Two tests do not meet the hypothesis of independence. Nevertheless, these findings do not controvert the hypothesis of our model, but call for further analysis.

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Bibliographic Info

Paper provided by University of Molise, Dept. EGSeI in its series Economics & Statistics Discussion Papers with number esdp09053.

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Length: 53 pages
Date of creation: 09 Sep 2009
Date of revision:
Handle: RePEc:mol:ecsdps:esdp09053

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Keywords: Market microstructure; Informed trading; Parallel trading; Transparency;

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References

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  1. Ellis, Katrina & Michaely, Roni & O'Hara, Maureen, 2000. "The Accuracy of Trade Classification Rules: Evidence from Nasdaq," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 35(04), pages 529-551, December.
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  6. repec:fth:diecpo:359 is not listed on IDEAS
  7. Haitao Li & Junbo Wang & Chunchi Wu & Yan He, 2009. "Are Liquidity and Information Risks Priced in the Treasury Bond Market?," Journal of Finance, American Finance Association, American Finance Association, vol. 64(1), pages 467-503, 02.
  8. Dunne, Peter & Hau, Harald & Moore, Michael, 2008. "A Tale of Two Platforms: Dealer Intermediation in the European Sovereign Bond Market," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6969, C.E.P.R. Discussion Papers.
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  12. David Easley & Maureen O'Hara & P.S. Srinivas, 1998. "Option Volume and Stock Prices: Evidence on Where Informed Traders Trade," Journal of Finance, American Finance Association, American Finance Association, vol. 53(2), pages 431-465, 04.
  13. Easley, David, et al, 1996. " Liquidity, Information, and Infrequently Traded Stocks," Journal of Finance, American Finance Association, American Finance Association, vol. 51(4), pages 1405-36, September.
  14. Brown, Philip & Thomson, Nathanial & Walsh, David, 1999. "Characteristics of the order flow through an electronic open limit order book," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 9(4), pages 335-357, November.
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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), Bank of Italy, Economic Research and International Relations Area 906, Bank of Italy, Economic Research and International Relations Area.

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