Informed Trading in the Euro Money Market for Term Lending
AbstractI address the role of information heterogeneity in the Euro interbank market for unsecured term lending. I use high-frequency quotes of bid and ask prices to estimate probabilities of informed trading for contract maturities from one month to one year. The dataset spans from November 2000 to March 2008, and includes the relevant events that characterize the developments of the Euro area money market. I obtain four main results. First, I show that the loose supply of liquidity of the ECB has not dampened the distortions arising from asymmetric information in the unsecured money market. I also find that the probability of trading with a better informed bank is higher on days when open market operations take place, and at the end of the maintenance period. This effect has strengthened during the turmoil. The results indicate that information is segmented, in the sense that heterogenous knowledge among banks is maturity-specific. Finally, the paper presents some evidence suggesting that the risk of trading with a counterparty that enjoys an enhanced information set is priced.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 02_10.
Date of creation: Jan 2010
Date of revision:
Market microstructure; PIN model; money markets; term structure;
Other versions of this item:
- Zagaglia, Paolo, 2010. "Informed trading in the Euro money market for term lending," MPRA Paper 20415, University Library of Munich, Germany.
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Alain Durré & Stefano Nardelli, 2008. "Volatility in the Euro area money market: effects from the monetary policy operational framework," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 13(4), pages 307-322.
- Todd E. Clark & Michael W. McCracken, 2000.
"Tests of Equal Forecast Accuracy and Encompassing for Nested Models,"
Econometric Society World Congress 2000 Contributed Papers
0319, Econometric Society.
- Clark, Todd E. & McCracken, Michael W., 2001. "Tests of equal forecast accuracy and encompassing for nested models," Journal of Econometrics, Elsevier, vol. 105(1), pages 85-110, November.
- Todd E. Clark & Michael McCracken, 1999. "Tests of Equal Forecast Accuracy and Encompassing for Nested Models," Computing in Economics and Finance 1999 1241, Society for Computational Economics.
- Todd E. Clark & Michael W. McCracken, 1999. "Tests of equal forecast accuracy and encompassing for nested models," Research Working Paper 99-11, Federal Reserve Bank of Kansas City.
- Angelo Baglioni & Andrea Monticini, 2008. "The Intraday Price of Money: Evidence from the e-MID Interbank Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(7), pages 1533-1540, October.
- Francis X. Diebold & Robert S. Mariano, 1994.
"Comparing Predictive Accuracy,"
NBER Technical Working Papers
0169, National Bureau of Economic Research, Inc.
- Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-44, January.
- Diebold, Francis X & Mariano, Roberto S, 1995. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 253-63, July.
- Bierens, Herman J., 1997. "Testing the unit root with drift hypothesis against nonlinear trend stationarity, with an application to the US price level and interest rate," Journal of Econometrics, Elsevier, vol. 81(1), pages 29-64, November.
- Bierens, Herman J., 1997.
"Nonparametric cointegration analysis,"
Journal of Econometrics,
Elsevier, vol. 77(2), pages 379-404, April.
- Andrews, Donald W K & Ploberger, Werner, 1994.
"Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative,"
Econometric Society, vol. 62(6), pages 1383-1414, November.
- Tom Doan, . "APGRADIENTTEST: RATS procedure to perform Andrews-Ploberger Structural Break Test for GARCH/Maximum Likelihood," Statistical Software Components RTS00007, Boston College Department of Economics.
- Tom Doan, . "APBREAKTEST: RATS procedure to implement Andrews-Ploberger Structural Break Test," Statistical Software Components RTS00006, Boston College Department of Economics.
- Tom Doan, . "REGHBREAK: RATS procedure to perform structural break test with bootstrapped p-values," Statistical Software Components RTS00176, Boston College Department of Economics.
- Donald W.K. Andrews & Werner Ploberger, 1992. "Optimal Tests When a Nuisance Parameter Is Present Only Under the Alternative," Cowles Foundation Discussion Papers 1015, Cowles Foundation for Research in Economics, Yale University.
- Beaupain, Renaud & Durré, Alain, 2008. "The interday and intraday patterns of the overnight market: evidence from an electronic platform," Working Paper Series 0988, European Central Bank.
- Liberati, Caterina & Marzo, Massimiliano & Zagaglia, Paolo & Zappa, Paola, 2012.
"Structural distortions in the Euro interbank market: the role of 'key players' during the recent market turmoil,"
40223, University Library of Munich, Germany.
- C. Liberati & M. Marzo & P. Zagaglia & P. Zappa, 2012. "Structural distortions in the Euro interbank market: The role of ‘key players’ during the recent market turmoil," Working Papers wp841, Dipartimento Scienze Economiche, Universita' di Bologna.
- Caterina Liberati & Massimiliano Marzo & Paolo Zagaglia & Paola Zappa, 2012. "Structural distortions in the Euro interbank market: The role of 'key players' during the recent market turmoil," Papers 1207.5269, arXiv.org.
- Caterina Liberati & Massimiliano Marzo & Paolo Zagaglia & Paola Zappa, 2012. "Structural Distortions in the Euro Interbank Market: The Role of ‘Key Players’ during the Recent Market Turmoil," Working Paper Series 57_12, The Rimini Centre for Economic Analysis.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roberto Patuelli).
If references are entirely missing, you can add them using this form.