Price discovery and trade fragmentation in a multi-market environment: Evidence from the MTS system
This paper proposes new metrics for the process of price discovery on the main electronic trading platform for euro-denominated government securities. Analysing price data on daily transactions for 107 bonds over a period of 27months, we find a greater degree of price leadership of the dominant market when our measures (as opposed to the traditional price discovery metrics) are used. We also present unambiguous evidence that a market’s contribution to price discovery is crucially affected by the level of trading activity. The implications of these empirical findings are discussed in the light of the debate about the possible restructuring of the regulatory framework for the Treasury bond market in Europe.
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
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.:
- Roberto Blanco & Simon Brennan & Ian W. Marsh, 2005. "An Empirical Analysis of the Dynamic Relation between Investment-Grade Bonds and Credit Default Swaps," Journal of Finance, American Finance Association, vol. 60(5), pages 2255-2281, October.
- Alfonso Dufour & Frank Skinner, 2004. "MTS Time Series: Market and Data Description for the European Bond and Repo Database," ICMA Centre Discussion Papers in Finance icma-dp2004-06, Henley Business School, Reading University.
- Caporale, Guglielmo Maria & Girardi, Alessandro & Paesani, Paolo, 2012.
"Quoted spreads and trade imbalance dynamics in the European Treasury bond market,"
The Quarterly Review of Economics and Finance,
Elsevier, vol. 52(2), pages 173-182.
- Guglielmo Maria Caporale & Alessandro Girardi & Paolo Paesani, 2010. "Quoted Spreads and Trade Imbalance Dynamics in the European Treasury Bond Market," CESifo Working Paper Series 3281, CESifo Group Munich.
- Guglielmo Maria Caporale & Alessandro Girardi & Paolo Paesani, 2010. "Quoted Spreads and Trade Imbalance Dynamics in the European Treasury Bond Market," Discussion Papers of DIW Berlin 1080, DIW Berlin, German Institute for Economic Research.
- Hasbrouck, Joel, 2002. "Stalking the "efficient price" in market microstructure specifications: an overview," Journal of Financial Markets, Elsevier, vol. 5(3), pages 329-339, July.
- Isabel Figuerola-Ferretti & Jesus Gonzalo, 2007.
"Modelling and measuring price discovery in commodity markets,"
Business Economics Working Papers
wb074510, Universidad Carlos III, Departamento de Economía de la Empresa.
- Figuerola-Ferretti, Isabel & Gonzalo, Jesús, 2010. "Modelling and measuring price discovery in commodity markets," Journal of Econometrics, Elsevier, vol. 158(1), pages 95-107, September.
- Lee, Tae-Hwy & Tse, Yiuman, 1996. "Cointegration tests with conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 73(2), pages 401-410, August.
- Cheung, Yiu Chung & de Jong, Frank & Rindi, Barbara, 2004.
"Trading European Sovereign Bonds: The Microstructure of the MTS Trading Platforms,"
CEPR Discussion Papers
4285, C.E.P.R. Discussion Papers.
- Cheung, Yiu Chung & de Jong, Frank & Rindi, Barbara, 2005. "Trading European sovereign bonds: the microstructure of the MTS trading platforms," Working Paper Series 0432, European Central Bank.
- Antonio Scalia & Valerio Vacca, 2001.
"Does market transparency matter? A case study,"
BIS Papers chapters,
in: Bank for International Settlements (ed.), Market liquidity: proceedings of a workshop held at the BIS, volume 2, pages 113-144
Bank for International Settlements.
- Antonio Scalia & Valerio Vacca, 1999. "Does Market Transparency Matter? a Case Study," Temi di discussione (Economic working papers) 359, Bank of Italy, Economic Research and International Relations Area.
- Vacca, V. & Scalia, A., 1999. "Does Market Transparency Matter? A Case Study," Papers 359, Banca Italia - Servizio di Studi.
- Dunne, Peter & Hau, Harald & Moore, Michael, 2008. "A Tale of Two Platforms: Dealer Intermediation in the European Sovereign Bond Market," CEPR Discussion Papers 6969, C.E.P.R. Discussion Papers.
- Papke, Leslie E & Wooldridge, Jeffrey M, 1996.
"Econometric Methods for Fractional Response Variables with an Application to 401(K) Plan Participation Rates,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 11(6), pages 619-32, Nov.-Dec..
- Leslie E. Papke & Jeffrey M. Wooldridge, 1993. "Econometric Methods for Fractional Response Variables with an Application to 401(k) Plan Participation Rates," NBER Technical Working Papers 0147, National Bureau of Economic Research, Inc.
- Guglielmo Maria Caporale & Alessandro Girardi, 2010.
"Price Formation on the EuroMTS Platform,"
CESifo Working Paper Series
2938, CESifo Group Munich.
- Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990.
"Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?,"
8905, Michigan State - Econometrics and Economic Theory.
- Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
- Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991. "Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?," Cowles Foundation Discussion Papers 979, Cowles Foundation for Research in Economics, Yale University.
- Michael W. Brandt & Kenneth A. Kavajecz, 2004. "Price Discovery in the U.S. Treasury Market: The Impact of Orderflow and Liquidity on the Yield Curve," Journal of Finance, American Finance Association, vol. 59(6), pages 2623-2654, December.
- Horvath, Michael T.K. & Watson, Mark W., 1995. "Testing for Cointegration When Some of the Cointegrating Vectors are Prespecified," Econometric Theory, Cambridge University Press, vol. 11(05), pages 984-1014, October.
- S. Levtchenkova & A. R. Pagan & J. C. Robertson, 1998.
Journal of Economic Surveys,
Wiley Blackwell, vol. 12(5), pages 507-532, December.
- Sugato Chakravarty & Huseyin Gulen & Stewart Mayhew, 2004. "Informed Trading in Stock and Option Markets," Journal of Finance, American Finance Association, vol. 59(3), pages 1235-1258, 06.
- Stefania ALBANESI & Barbara RINDI, 2000. "The Quality of the Italian Treasury Bond Market, Asymmetric Information and Transaction Costs," Annales d'Economie et de Statistique, ENSAE, issue 60, pages 1-19.
- Roberto Blanco & Simon Brennan & Ian W Marsh, 2004.
"An empirical analysis of the dynamic relationship between investment-grade bonds and credit default swaps,"
Bank of England working papers
211, Bank of England.
- Roberto Blanco & Simon Brennan & Ian W. Marsh, 2004. "An empirical analysis of the dynamic relationship between investment grade bonds and credit default swaps," Banco de Espa�a Working Papers 0401, Banco de Espa�a.
- Gabriele Galati & Kostas Tsatsaronis, 2001. "The impact of the euro on Europe's financial markets," BIS Working Papers 100, Bank for International Settlements.
- Oleg Korenok & Bruce Mizrach & Stanislav Radchenko, 2011. "A Structural Approach To Information Shares," Departmental Working Papers 201130, Rutgers University, Department of Economics.
- Peter G. Dunne & Michael J. Moore & Richard Portes, 2007. "Benchmark Status in Fixed-Income Asset Markets," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(9-10), pages 1615-1634.
- deB. Harris, Frederick H. & McInish, Thomas H. & Shoesmith, Gary L. & Wood, Robert A., 1995. "Cointegration, Error Correction, and Price Discovery on Informationally Linked Security Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(04), pages 563-579, December.
- Christian Upper & Thomas Werner, 2002. "How resilient are financial markets to stress? Bund futures and bonds during the 1998 turbulence," BIS Papers chapters, in: Bank for International Settlements (ed.), Market functioning and central bank policy, volume 12, pages 110-123 Bank for International Settlements.
- Baillie, Richard T. & Geoffrey Booth, G. & Tse, Yiuman & Zabotina, Tatyana, 2002. "Price discovery and common factor models," Journal of Financial Markets, Elsevier, vol. 5(3), pages 309-321, July.
- Gonzalo, Jesus & Granger, Clive W J, 1995.
"Estimation of Common Long-Memory Components in Cointegrated Systems,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 13(1), pages 27-35, January.
- Gonzalo, J. & Granger, C., 1992. "Estimation of Common Long-Memory Components in Cointegrated Systems," Papers 4, Boston University - Department of Economics.
- Tom Doan, . "RATS programs to replicate Gonzalo and Granger JBES 1995 paper," Statistical Software Components RTZ00074, Boston College Department of Economics.
- Alessandro Beber & Michael W. Brandt & Kenneth A. Kavajecz, 2009.
"Flight-to-Quality or Flight-to-Liquidity? Evidence from the Euro-Area Bond Market,"
Review of Financial Studies,
Society for Financial Studies, vol. 22(3), pages 925-957, March.
- Alessandro Beber & Michael W. Brandt & Kenneth A. Kavajecz, 2006. "Flight-to-Quality or Flight-to-Liquidity? Evidence From the Euro-Area Bond Market," NBER Working Papers 12376, National Bureau of Economic Research, Inc.
- Lehmann, Bruce N., 2002. "Some desiderata for the measurement of price discovery across markets," Journal of Financial Markets, Elsevier, vol. 5(3), pages 259-276, July.
- Cheol S. Eun & Sanjiv Sabherwal, 2003. "Cross-Border Listings and Price Discovery: Evidence from U.S.-Listed Canadian Stocks," Journal of Finance, American Finance Association, vol. 58(2), pages 549-576, 04.
- Bingcheng Yan & Eric Zivot, 2007. "The Dynamics of Price Discovery," Working Papers UWEC-2005-01-R, University of Washington, Department of Economics, revised Mar 2007.
- Green, Christopher J & Joujon, Emmanuel, 2000. "Unified Tests of Causality and Cost of Carry: The Pricing of the French Stock Index Futures Contract," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 5(2), pages 121-40, April.
- Gonzalo, J. & Ng, S., 1996.
"A Systematic Framework for Analyzing the Dynamic Effects of Permanent and Transitory Shocks,"
Cahiers de recherche
9603, Universite de Montreal, Departement de sciences economiques.
- Gonzalo, Jesus & Ng, Serena, 2001. "A systematic framework for analyzing the dynamic effects of permanent and transitory shocks," Journal of Economic Dynamics and Control, Elsevier, vol. 25(10), pages 1527-1546, October.
- Gonzalo, J. & Ng, S., 1996. "A Systematic Framework for Analyzing the Dynamic Effects of Permanent and Transitory Shocks," Cahiers de recherche 9603, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- Christopher Chung & Bryan Campbell & Scott Hendry, 2007. "Price Discovery in Canadian Government Bond Futures and Spot Markets," Working Papers 07-4, Bank of Canada.
- Joao A. Bastos, 2009.
"Forecasting bank loans loss-given-default,"
CEMAPRE Working Papers
0901, Centre for Applied Mathematics and Economics (CEMAPRE), School of Economics and Management (ISEG), Technical University of Lisbon.
- Huang, Roger D. & Cai, Jun & Wang, Xiaozu, 2002. "Information-Based Trading in the Treasury Note Interdealer Broker Market," Journal of Financial Intermediation, Elsevier, vol. 11(3), pages 269-296, July.
- Hasbrouck, Joel, 1995. " One Security, Many Markets: Determining the Contributions to Price Discovery," Journal of Finance, American Finance Association, vol. 50(4), pages 1175-99, September.
- Menkveld, Albert J. & Cheung, Yiu Chung & de Jong, Frank, 2004. "Euro area sovereign yield dynamics: the role of order imbalance," Working Paper Series 0385, European Central Bank.
- Bruce Mizrach, 2008. "Jump and Cojump Risk in Subprime Home Equity Derivatives," Departmental Working Papers 200802, Rutgers University, Department of Economics.
- Roger D. Huang, 2002. "The Quality of ECN and Nasdaq Market Maker Quotes," Journal of Finance, American Finance Association, vol. 57(3), pages 1285-1319, 06.
- Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
- Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, March.
When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:37:y:2013:i:2:p:227-240. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.