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Private information flow and price discovery in the U.S. treasury market

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  • Jiang, George J.
  • Lo, Ingrid

Abstract

Using intraday data, we identify the intensity of private information flow in the U.S. Treasury market. Our results show that the intensity of private information flow is highly correlated with public information shocks and higher for longer maturity bonds. More importantly, we find that bond price changes associated with high intensity of private information flow tend to be persistent, whereas those associated with low intensity of private information flow are more likely reversed. While public information and private information are the main determinants of bond price variations on days with news announcements, private information and liquidity shocks are important determinants of bond price variations on days with no significant events. Finally, we show that the depth of limit order book is inversely related to the intensity of private information flow. Nevertheless, informed dealers do not seem to use hidden orders to disguise their trading intentions.

Suggested Citation

  • Jiang, George J. & Lo, Ingrid, 2014. "Private information flow and price discovery in the U.S. treasury market," Journal of Banking & Finance, Elsevier, vol. 47(C), pages 118-133.
  • Handle: RePEc:eee:jbfina:v:47:y:2014:i:c:p:118-133
    DOI: 10.1016/j.jbankfin.2014.06.026
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    Cited by:

    1. Kitamura, Yoshihiro, 2016. "The probability of informed trading measured with price impact, price reversal, and volatility," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 42(C), pages 77-90.
    2. Ivan Indriawan & Feng Jiao & Yiuman Tse, 2019. "The impact of the US stock market opening on price discovery of government bond futures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(7), pages 779-802, July.
    3. Fleming, Michael J. & Mizrach, Bruce & Nguyen, Giang, 2018. "The microstructure of a U.S. Treasury ECN: The BrokerTec platform," Journal of Financial Markets, Elsevier, vol. 40(C), pages 2-22.
    4. Quan Chen & Sang-Bing Tsai & Yuming Zhai & Chien-Chi Chu & Jie Zhou & Guodong Li & Yuxiang Zheng & Jiangtao Wang & Li-Chung Chang & Chao-Feng Hsu, 2018. "An Empirical Research on Bank Client Credit Assessments," Sustainability, MDPI, Open Access Journal, vol. 10(5), pages 1-17, May.
    5. Warren Bailey & Lin Zheng & Yinggang Zhou, 2012. "What Makes the VIX Tick?," Working Papers 222012, Hong Kong Institute for Monetary Research.

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    More about this item

    Keywords

    Private information flow; Public information shocks; Price discovery; Order flow impact; Bond return volatility; Depth of limit order book;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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