IDEAS home Printed from https://ideas.repec.org/a/cup/jfinqa/v39y2004i03p595-611_00.html
   My bibliography  Save this article

The Effect of Transaction Size on Off-the-Run Treasury Prices

Author

Listed:
  • Babbel, David F.
  • Merrill, Craig B.
  • Meyer, Mark F.
  • de Villiers, Meiring

Abstract

This paper examines intra-day trading data from the inter-dealer broker market for U.S. Treasury securities and measures the degree of price pressure in the off-the-run Treasury market. As is well known, securities that would appear to be very close substitutes, i.e., on-the-run and off-the-run Treasury bonds, behave as if there is some degree of market segmentation. This is the first systematic study of the off-the-run Treasury note and bond market focused entirely on a price pressure effect using intra-day data. The paper analyzes price pressure through matched pairs of securities that differ only in liquidity.

Suggested Citation

  • Babbel, David F. & Merrill, Craig B. & Meyer, Mark F. & de Villiers, Meiring, 2004. "The Effect of Transaction Size on Off-the-Run Treasury Prices," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 39(3), pages 595-611, September.
    • Handle: RePEc:cup:jfinqa:v:39:y:2004:i:03:p:595-611_00
    as

    Download full text from publisher

    File URL: https://www.cambridge.org/core/product/identifier/S002210900000404X/type/journal_article
    File Function: link to article abstract page
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Holthausen, Robert W. & Leftwich, Richard W. & Mayers, David, 1987. "The effect of large block transactions on security prices: A cross-sectional analysis," Journal of Financial Economics, Elsevier, vol. 19(2), pages 237-267, December.
    2. Hausman, Jerry A. & Lo, Andrew W. & MacKinlay, A. Craig, 1992. "An ordered probit analysis of transaction stock prices," Journal of Financial Economics, Elsevier, vol. 31(3), pages 319-379, June.
    3. Simon, David P., 1991. "Segmentation in the Treasury Bill Market: Evidence from Cash Management Bills," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 26(1), pages 97-108, March.
    4. Seppi, Duane J, 1990. "Equilibrium Block Trading and Asymmetric Information," Journal of Finance, American Finance Association, vol. 45(1), pages 73-94, March.
    5. Ananth Madhavan & Morris Mendelson & Junius W. Peake, "undated". "Risky Business: The Clearance and Settlement of Financial Transactions," Rodney L. White Center for Financial Research Working Papers 40-88, Wharton School Rodney L. White Center for Financial Research.
    6. Barber, Brad M. & Loeffler, Douglas, 1993. "The “Dartboard†Column: Second-Hand Information and Price Pressure," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(2), pages 273-284, June.
    7. Madhavan, Ananth & Richardson, Matthew & Roomans, Mark, 1997. "Why Do Security Prices Change? A Transaction-Level Analysis of NYSE Stocks," Review of Financial Studies, Society for Financial Studies, vol. 10(4), pages 1035-1064.
    8. Poterba, James M., 1989. "Tax reform and the market for tax-exempt debt," Regional Science and Urban Economics, Elsevier, vol. 19(3), pages 537-562, August.
    9. Park, Sang Yong & Reinganum, Marc R., 1986. "The puzzling price behavior of treasury bills that mature at the turn of calendar months," Journal of Financial Economics, Elsevier, vol. 16(2), pages 267-283, June.
    10. Mark D. Flood, 1991. "Microstructure theory and the foreign exchange market," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 52-70.
    11. E. Gerald Corrigan, 1992. "Statement to Congress, January 23, 1992(discussion of joint report on improvements in the government securities market)," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Mar, pages 199-203.
    12. Allen, Franklin & Postlewaite, Andrew, 1984. "Rational Expectations and the Measurement of a Stock's Elasticity of Demand," Journal of Finance, American Finance Association, vol. 39(4), pages 1119-1125, September.
    13. Keim, Donald B & Madhaven, Ananth, 1996. "The Upstairs Market for Large-Block Transactions: Analysis and Measurement of Price Effects," Review of Financial Studies, Society for Financial Studies, vol. 9(1), pages 1-36.
    14. Scholes, Myron S, 1972. "The Market for Securities: Substitution versus Price Pressure and the Effects of Information on Share Prices," The Journal of Business, University of Chicago Press, vol. 45(2), pages 179-211, April.
    15. Burdett, Kenneth & O'hara, Maureen, 1987. "Building blocks : An introduction to block trading," Journal of Banking & Finance, Elsevier, vol. 11(2), pages 193-212, June.
    16. Simon, David P., 1994. "Markups, quantity risk, and bidding strategies at treasury coupon auctions," Journal of Financial Economics, Elsevier, vol. 35(1), pages 43-62, February.
    17. Mikkelson, Wayne H. & Partch, M. Megan, 1985. "Stock price effects and costs of secondary distributions," Journal of Financial Economics, Elsevier, vol. 14(2), pages 165-194, June.
    18. Harris, Lawrence E & Gurel, Eitan, 1986. "Price and Volume Effects Associated with Changes in the S&P 500 List: New Evidence for the Existence of Price Pressures," Journal of Finance, American Finance Association, vol. 41(4), pages 815-829, September.
    19. Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "An Intertemporal General Equilibrium Model of Asset Prices," Econometrica, Econometric Society, vol. 53(2), pages 363-384, March.
    20. Milton Friedman, 1964. "Comment on "Collusion in the Auction Market for Treasury Bills"," Journal of Political Economy, University of Chicago Press, vol. 72, pages 513-513.
    21. Garbade, Kenneth D & Silber, William L, 1976. "Price Dispersion in the Government Securities Market," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 721-740, August.
    22. Ogden, Joseph P., 1987. "The End of the Month as a Preferred Habitat: A Test of Operational Efficiency in the Money Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(3), pages 329-343, September.
    23. Loderer, Claudio & Cooney, John W & van Drunen, Leonard D, 1991. "The Price Elasticity of Demand for Common Stock," Journal of Finance, American Finance Association, vol. 46(2), pages 621-651, June.
    24. Liang, Bing, 1999. "Price Pressure: Evidence from the "Dartboard" Column," The Journal of Business, University of Chicago Press, vol. 72(1), pages 119-134, January.
    25. Tinic, Seha M. & West, Richard R., 1972. "Competition and the Pricing of Dealer Service in the Over-the-Counter Stock Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 7(3), pages 1707-1727, June.
    26. Simon, David P., 1994. "Further evidence on segmentation in the treasury bill market," Journal of Banking & Finance, Elsevier, vol. 18(1), pages 139-151, January.
    27. Eli Schwartz, 1967. "The Refunding Decision," The Journal of Business, University of Chicago Press, vol. 40, pages 448-448.
    28. Kraus, Alan & Stoll, Hans R, 1972. "Price Impacts of Block Trading on the New York Stock Exchange," Journal of Finance, American Finance Association, vol. 27(3), pages 569-588, June.
    29. Babbel, David F. & Merrill, Craig & Panning, William, 1995. "Default risk and the effective duration of bonds," Policy Research Working Paper Series 1511, The World Bank.
    30. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    31. Chan, Louis K. C. & Lakonishok, Josef, 1993. "Institutional trades and intraday stock price behavior," Journal of Financial Economics, Elsevier, vol. 33(2), pages 173-199, April.
    32. Shleifer, Andrei, 1986. "Do Demand Curves for Stocks Slope Down?," Journal of Finance, American Finance Association, vol. 41(3), pages 579-590, July.
    33. Michael J. Fleming & Eli M. Remolona, 1999. "Price Formation and Liquidity in the U.S. Treasury Market: The Response to Public Information," Journal of Finance, American Finance Association, vol. 54(5), pages 1901-1915, October.
    34. Dann, Larry Y. & Mayers, David & Raab, Robert Jr., 1977. "Trading rules, large blocks and the speed of price adjustment," Journal of Financial Economics, Elsevier, vol. 4(1), pages 3-22, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ligon, James A. & Liu, Hao-Chen, 2013. "The relation of trade size and price contribution in a traditional foreign exchange brokered market," Pacific-Basin Finance Journal, Elsevier, vol. 21(1), pages 1024-1045.
    2. Merrill, Craig B. & Nadauld, Taylor D. & Stulz, René M. & Sherlun, Shane M., 2021. "Were there fire sales in the RMBS market?," Journal of Monetary Economics, Elsevier, vol. 122(C), pages 17-37.
    3. Chris D'Souza & Charles Gaa, 2004. "The Effects of Economic News on Bond Market Liquidity," Staff Working Papers 04-16, Bank of Canada.
    4. Díaz, Antonio & Escribano, Ana, 2017. "Liquidity measures throughout the lifetime of the U.S. Treasury bond," Journal of Financial Markets, Elsevier, vol. 33(C), pages 42-74.
    5. Han, Bing & Longstaff, Francis A. & Merrill, Craig, 2005. "The Cherry-Picking Option in the U.S. Treasury Buyback Auctions," Working Paper Series 2004-23, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    6. Helwege, Jean & Wang, Liying, 2021. "Liquidity and price pressure in the corporate bond market: evidence from mega-bonds," Journal of Financial Intermediation, Elsevier, vol. 48(C).
    7. De Santis, Roberto A. & Holm-Hadulla, Fédéric, 2017. "Flow effects of central bank asset purchases on euro area sovereign bond yields: evidence from a natural experiment," Working Paper Series 2052, European Central Bank.
    8. Georges Hübner & Robert Joliet, 2013. "Government Debt Denomination Policies Before and After the EMU Advent," Open Economies Review, Springer, vol. 24(2), pages 283-309, April.
    9. Brown, Alessio J. G. & Žarnić, Žiga, 2003. "Explaining the increased German credit spread: The role of supply factors," Kiel Advanced Studies Working Papers 412, Kiel Institute for the World Economy (IfW Kiel).
    10. Longstaff, Francis A & Han, Bing & Merrill, Craig, 2004. "Revenue Implications of Multi-Item Multi-Unit Auction Designs: Empirical Evidence from the U.S. Treasury Buyback Auctions," University of California at Los Angeles, Anderson Graduate School of Management qt7344v866, Anderson Graduate School of Management, UCLA.
    11. Seth Kopchak, 2014. "The absorption effect of US Treasury auctions," Review of Quantitative Finance and Accounting, Springer, vol. 43(1), pages 21-44, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Andrew Holmes & Barrett A. Slade, 2001. "Do Tax-Deferred Exchanges Impact Purchase Price? Evidence form the Phoenix Apartment Market," ERES eres2001_180, European Real Estate Society (ERES).
    2. LaPlante, Michele & Muscarella, Chris J., 1997. "Do institutions receive comparable execution in the NYSE and Nasdaq markets? A transaction study of block trades," Journal of Financial Economics, Elsevier, vol. 45(1), pages 97-134, July.
    3. Murgia, Maurizio & Pinna, Andrea & Gottardo, Pietro & Bosetti, Luisella, 2019. "The impact of large orders in electronic markets," International Review of Economics & Finance, Elsevier, vol. 59(C), pages 174-192.
    4. Jung-Wook Kim & Jason Lee & Randall Morck, 2009. "Characteristics of Observed Limit Order Demand and Supply Schedules for Individual Stocks," NBER Working Papers 14733, National Bureau of Economic Research, Inc.
    5. Agarwalla, Sobhesh Kumar & Pandey, Ajay, 2010. "Price Impact of Block Trades and Price Behavior Surrounding Block Trades in Indian Capital Market," IIMA Working Papers WP2010-04-02, Indian Institute of Management Ahmedabad, Research and Publication Department.
    6. Kempf, Alexander & Korn, Olaf, 1998. "Market depth and order size: an analysis of permanent price effects of DAX futures' trades," ZEW Discussion Papers 98-10, ZEW - Leibniz Centre for European Economic Research.
    7. Chune Young Chung & Seok‐Kyun Hur & Suk Bong Kim, 2020. "Overnight block trades in the Korean stock market," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(3), pages 2231-2261, September.
    8. Dimitri Vayanos, 2001. "Strategic Trading in a Dynamic Noisy Market," Journal of Finance, American Finance Association, vol. 56(1), pages 131-171, February.
    9. Fan, Longzhen & Hu, Bill & Jiang, Christine, 2012. "Pricing and information content of block trades on the Shanghai Stock Exchange," Pacific-Basin Finance Journal, Elsevier, vol. 20(3), pages 378-397.
    10. Oehler, Andreas & Häcker, Mirko, 2003. "Kurseinfluss mittlerer und großer Transaktionen am deutschen Aktienmarkt," Discussion Papers 20, University of Bamberg, Chair of Finance.
    11. Aktas, Osman Ulas & Kryzanowski, Lawrence, 2014. "Market impacts of trades for stocks listed on the Borsa Istanbul," Emerging Markets Review, Elsevier, vol. 20(C), pages 152-175.
    12. Dimitri Vayanos & Jiang Wang, 2012. "Market Liquidity -- Theory and Empirical Evidence," NBER Working Papers 18251, National Bureau of Economic Research, Inc.
    13. Ajay Pandey & Sobhesh Kumar Agarwalla, 2010. "Price Impact of Block Trades and Price Behavior Surrounding Block Trades in Indian Capital Market," Working Papers id:2618, eSocialSciences.
    14. Vayanos, Dimitri & Wang, Jiang, 2013. "Market Liquidity—Theory and Empirical Evidence ," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1289-1361, Elsevier.
    15. Anna Obizhaeva, 2007. "Liquidity Estimates and Selection Bias," Working Papers w0225, Center for Economic and Financial Research (CEFIR).
    16. Kempf, Alexander & Korn, Olaf, 1999. "Market depth and order size1," Journal of Financial Markets, Elsevier, vol. 2(1), pages 29-48, February.
    17. Anna Obizhaeva, 2009. "Portfolio Transitions and Stock Price Dynamics," Working Papers w0224, Center for Economic and Financial Research (CEFIR).
    18. David M. Walsh, 1997. "Orders vs Trades: Price Effects and Size Measures," Australian Journal of Management, Australian School of Business, vol. 22(1), pages 47-69, June.
    19. Alzahrani, Ahmed A. & Gregoriou, Andros & Hudson, Robert, 2013. "Price impact of block trades in the Saudi stock market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 23(C), pages 322-341.
    20. Bertsimas, Dimitris & Lo, Andrew W., 1998. "Optimal control of execution costs," Journal of Financial Markets, Elsevier, vol. 1(1), pages 1-50, April.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cup:jfinqa:v:39:y:2004:i:03:p:595-611_00. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kirk Stebbing (email available below). General contact details of provider: https://www.cambridge.org/jfq .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.