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The cross-market information content of stock and bond order flow

  • Underwood, Shane
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    In this paper I test the hypothesis that trading activity in the stock and bond markets contains important marketwide pricing information. Using a large sample of actively traded stocks and U.S. Treasury securities, I find that aggregate order imbalances play a strong role in explaining cross-market returns. I interpret this as evidence that aggregate order flow reveals information about the risk preferences, beliefs, and endowments of the investor population that is relevant for pricing securities in both markets. I also find evidence that cross-market hedging is an important source of linkages across the two markets, especially during periods of elevated equity volatility.

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    File URL: http://www.sciencedirect.com/science/article/B6VHN-4TGXPH2-1/2/dd698b636278ab4aefc8da18dfe2d7ea
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    Article provided by Elsevier in its journal Journal of Financial Markets.

    Volume (Year): 12 (2009)
    Issue (Month): 2 (May)
    Pages: 268-289

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    Handle: RePEc:eee:finmar:v:12:y:2009:i:2:p:268-289
    Contact details of provider: Web page: http://www.elsevier.com/locate/finmar

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