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Price Discovery and Trade Fragmentation in a Multi-Market Environment: Evidence from the MTS System

  • Guglielmo Maria Caporale
  • Alessandro Girardi

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 twenty-seven months, 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.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.376278.de/dp1139.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1139.

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Length: 41 p.
Date of creation: 2011
Date of revision:
Handle: RePEc:diw:diwwpp:dp1139
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