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Private Information Flow and Price Discovery in the U.S. Treasury Market

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  • George J. Jiang
  • Ingrid Lo

Abstract

Existing studies show that U.S. Treasury bond price changes are mainly driven by public information shocks, as manifested in macroeconomic news announcements and events. The literature also shows that heterogeneous private information contributes significantly to price discovery for U.S. Treasury securities. In this paper, we use high frequency transaction data for 2-, 5-, and 10-year Treasury notes and employ a Markov switching model to identify intraday private information flow in the U.S. Treasury market. We show that the probability of private information flow (PPIF) identified in our model effectively captures permanent price effects in U.S. Treasury securities. In addition, our results show that public information shocks and heterogeneous private information are the main factors of bond price discovery on announcement days, whereas private information and liquidity shocks play more important roles in bond price variation on non-announcement days. Most interestingly, our results show that the role of heterogeneous private information is more prominent when public information shocks are either high or low. Furthermore, we show that heterogeneous private information flow is followed by low trading volume, low total market depth and hidden depth. The pattern is more pronounced on non-announcement days.

Suggested Citation

  • George J. Jiang & Ingrid Lo, 2011. "Private Information Flow and Price Discovery in the U.S. Treasury Market," Staff Working Papers 11-5, Bank of Canada.
  • Handle: RePEc:bca:bocawp:11-5
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    Cited by:

    1. Warren Bailey & Lin Zheng & Yinggang Zhou, 2012. "What Makes the VIX Tick?," Working Papers 222012, Hong Kong Institute for Monetary Research.
    2. 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.
    3. repec:gam:jsusta:v:10:y:2018:i:5:p:1406-:d:144284 is not listed on IDEAS

    More about this item

    Keywords

    Financial markets; Market structure and pricing;

    JEL classification:

    • 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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