The Price Impact of Economic News, Private Information and Trading Intensity
In this paper we use three years high-frequency data to investigate the role played by public and private information in the process of price formation in two secondary government bond markets. As public information we examine the impact of regularly scheduled macroeconomic news announcements. We identify those announcements with the greatest impact on these markets. As private information we estimate the price impact of order flow. In fact, according to the microstructure models, private information in this context is related to the subjective evaluation of information and order flow can reflect difference of opinions among market participants. Thus, market participant may infer information about the subjective beliefs of other market participants looking at the aggregate order flow. We then use a vector autoregressive model for prices and trades to empirically test the role played by intraday trading intensity and by the waiting time between consecutive transactions in the process of price formations.
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