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Price discovery in the Italian sovereign bonds market: the role of order flow

Author

Listed:
  • Alessandro Girardi

    (National Institute of Statistics (ISTAT))

  • Claudio Impenna

    (Bank of Italy)

Abstract

This paper analyses the price discovery process and the informational role of trading in the Italian wholesale secondary markets for Treasury bonds: the B2B MTS cash and the B2C BondVision trading venues. Using daily data for a representative set of fixed rate government bonds over the period January 2007 - February 2012, we find that the B2C dealer-to-customer market contributes to the process of price formation to a greater extent than the B2B interdealer platform. The informational role of trading is found to be considerable: order flow is a key variable in the process of price formation and appears to continuously act on a cross market basis. Moreover, the explanatory role of order flow turns out to be stronger when liquidity conditions are poorer.

Suggested Citation

  • Alessandro Girardi & Claudio Impenna, 2013. "Price discovery in the Italian sovereign bonds market: the role of order flow," Temi di discussione (Economic working papers) 906, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_906_13
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    References listed on IDEAS

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    Cited by:

    1. Cyn-Young Park & Rogelio Mercado & Jaehun Choi & Hosung Lim, 2015. "Price Discovery and Foreign Participation in the Republic of Korea’s Government Bond Cash and Futures Markets," ADB Economics Working Paper Series 427, Asian Development Bank.
    2. Claudio Impenna & Paola Paiardini, 2019. "Informed trading in a two-tier market structure under financial distress," Discussion Papers 19-06, Department of Economics, University of Birmingham.
    3. Paiardini, Paola, 2014. "The impact of economic news on bond prices: Evidence from the MTS platform," Journal of Banking & Finance, Elsevier, vol. 49(C), pages 302-322.
    4. Rainone, Edoardo, 2020. "The network nature of over-the-counter interest rates," Journal of Financial Markets, Elsevier, vol. 47(C).
    5. Edoardo Rainone, 2015. "Testing information diffusion in the decentralized unsecured market for euro funds," Temi di discussione (Economic working papers) 1022, Bank of Italy, Economic Research and International Relations Area.
    6. Michele Leonardo Bianchi, 2018. "Are multi-factor Gaussian term structure models still useful? An empirical analysis on Italian BTPs," Papers 1805.09996, arXiv.org.
    7. Paiardini, Paola, 2015. "Informed trading in parallel bond markets," Journal of Financial Markets, Elsevier, vol. 26(C), pages 103-121.
    8. Jakree Koosakul, 2016. "Daily Movements in the Thai Yield Curve: Fundamental and Non-Fundamental Drivers," PIER Discussion Papers 30., Puey Ungphakorn Institute for Economic Research, revised Jun 2016.
    9. Jakree Koosakul, 2016. "Daily Movements in the Thai Yield Curve: Fundamental and Non-Fundamental Drivers," PIER Discussion Papers 30, Puey Ungphakorn Institute for Economic Research.
    10. Papavassiliou, Vassilios G. & Kinateder, Harald, 2021. "Information shares and market quality before and during the European sovereign debt crisis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 72(C).

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    • G2 - Financial Economics - - Financial Institutions and Services

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