IDEAS home Printed from https://ideas.repec.org/p/wop/pennin/01-03.html
   My bibliography  Save this paper

The Effect of Transaction Size on Off-the-Run Treasury Prices

Author

Listed:
  • David F. Babbel
  • Craig B. Merrill
  • Mark F. Meyer
  • Meiring de Villiers

Abstract

A price pressure effect is implied by segmentation in the market for a security. An empirical property of a segmented market is that the price of the security is sensitive to supply and demand conditions for that specific security, absent changes in risk and absent any new information. This paper examines intra-day trading data from the inter-dealer broker market for U.S. Treasury securities and finds that there is a price pressure effect in the off-the-run Treasury market. Thus, securities that would appear to be very close substitutes, i.e., on-the-run and off-the-run Treasury bonds, behave as if there is some degree of market segmentation. There have been several studies of price pressure in the equity market and Treasury bill market but this is the first study of the off-the-run Treasury note and bond market to investigate a price pressure effect using intra-day data. It is also the first study to analyze price pressure through matched pairs of securities that differ only in liquidity and with high frequency data.

Suggested Citation

  • David F. Babbel & Craig B. Merrill & Mark F. Meyer & Meiring de Villiers, 2001. "The Effect of Transaction Size on Off-the-Run Treasury Prices," Center for Financial Institutions Working Papers 01-03, Wharton School Center for Financial Institutions, University of Pennsylvania.
  • Handle: RePEc:wop:pennin:01-03
    as

    Download full text from publisher

    File URL: http://fic.wharton.upenn.edu/fic/papers/01/0103.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Holthausen, Robert W. & Leftwich, Richard W. & Mayers, David, 1987. "The effect of large block transactions on security prices: A cross-sectional analysis," Journal of Financial Economics, Elsevier, vol. 19(2), pages 237-267, December.
    2. Hausman, Jerry A. & Lo, Andrew W. & MacKinlay, A. Craig, 1992. "An ordered probit analysis of transaction stock prices," Journal of Financial Economics, Elsevier, vol. 31(3), pages 319-379, June.
    3. Simon, David P., 1991. "Segmentation in the Treasury Bill Market: Evidence from Cash Management Bills," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 26(01), pages 97-108, March.
    4. Seppi, Duane J, 1990. " Equilibrium Block Trading and Asymmetric Information," Journal of Finance, American Finance Association, vol. 45(1), pages 73-94, March.
    5. Ananth Madhavan & Morris Mendelson & Junius W. Peake, "undated". "Risky Business: The Clearance and Settlement of Financial Transactions," Rodney L. White Center for Financial Research Working Papers 40-88, Wharton School Rodney L. White Center for Financial Research.
    6. Barber, Brad M. & Loeffler, Douglas, 1993. "The “Dartboard” Column: Second-Hand Information and Price Pressure," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(02), pages 273-284, June.
    7. Madhavan, Ananth & Richardson, Matthew & Roomans, Mark, 1997. "Why Do Security Prices Change? A Transaction-Level Analysis of NYSE Stocks," Review of Financial Studies, Society for Financial Studies, vol. 10(4), pages 1035-1064.
    8. Poterba, James M., 1989. "Tax reform and the market for tax-exempt debt," Regional Science and Urban Economics, Elsevier, vol. 19(3), pages 537-562, August.
    9. Park, Sang Yong & Reinganum, Marc R., 1986. "The puzzling price behavior of treasury bills that mature at the turn of calendar months," Journal of Financial Economics, Elsevier, vol. 16(2), pages 267-283, June.
    10. Mark D. Flood, 1991. "Microstructure theory and the foreign exchange market," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 52-70.
    11. Allen, Franklin & Postlewaite, Andrew, 1984. " Rational Expectations and the Measurement of a Stock's Elasticity of Demand," Journal of Finance, American Finance Association, vol. 39(4), pages 1119-1125, September.
    12. Keim, Donald B & Madhaven, Ananth, 1996. "The Upstairs Market for Large-Block Transactions: Analysis and Measurement of Price Effects," Review of Financial Studies, Society for Financial Studies, vol. 9(1), pages 1-36.
    13. Scholes, Myron S, 1972. "The Market for Securities: Substitution versus Price Pressure and the Effects of Information on Share Prices," The Journal of Business, University of Chicago Press, vol. 45(2), pages 179-211, April.
    14. Burdett, Kenneth & O'hara, Maureen, 1987. "Building blocks : An introduction to block trading," Journal of Banking & Finance, Elsevier, vol. 11(2), pages 193-212, June.
    15. Simon, David P., 1994. "Markups, quantity risk, and bidding strategies at treasury coupon auctions," Journal of Financial Economics, Elsevier, vol. 35(1), pages 43-62, February.
    16. Mikkelson, Wayne H. & Partch, M. Megan, 1985. "Stock price effects and costs of secondary distributions," Journal of Financial Economics, Elsevier, vol. 14(2), pages 165-194, June.
    17. Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "An Intertemporal General Equilibrium Model of Asset Prices," Econometrica, Econometric Society, vol. 53(2), pages 363-384, March.
    18. Milton Friedman, 1964. "Comment on "Collusion in the Auction Market for Treasury Bills"," Journal of Political Economy, University of Chicago Press, vol. 72, pages 513-513.
    19. Garbade, Kenneth D & Silber, William L, 1976. "Price Dispersion in the Government Securities Market," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 721-740, August.
    20. Ogden, Joseph P., 1987. "The End of the Month as a Preferred Habitat: A Test of Operational Efficiency in the Money Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(03), pages 329-343, September.
    21. Loderer, Claudio & Cooney, John W & van Drunen, Leonard D, 1991. " The Price Elasticity of Demand for Common Stock," Journal of Finance, American Finance Association, vol. 46(2), pages 621-651, June.
    22. Liang, Bing, 1999. "Price Pressure: Evidence from the "Dartboard" Column," The Journal of Business, University of Chicago Press, vol. 72(1), pages 119-134, January.
    23. Tinic, Seha M. & West, Richard R., 1972. "Competition and the Pricing of Dealer Service in the Over-the-Counter Stock Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 7(03), pages 1707-1727, June.
    24. Simon, David P., 1994. "Further evidence on segmentation in the treasury bill market," Journal of Banking & Finance, Elsevier, vol. 18(1), pages 139-151, January.
    25. Kraus, Alan & Stoll, Hans R, 1972. "Price Impacts of Block Trading on the New York Stock Exchange," Journal of Finance, American Finance Association, vol. 27(3), pages 569-588, June.
    26. Babbel, David F. & Merrill, Craig & Panning, William, 1995. "Default risk and the effective duration of bonds," Policy Research Working Paper Series 1511, The World Bank.
    27. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    28. Chan, Louis K. C. & Lakonishok, Josef, 1993. "Institutional trades and intraday stock price behavior," Journal of Financial Economics, Elsevier, vol. 33(2), pages 173-199, April.
    29. Shleifer, Andrei, 1986. " Do Demand Curves for Stocks Slope Down?," Journal of Finance, American Finance Association, vol. 41(3), pages 579-590, July.
    30. Michael J. Fleming & Eli M. Remolona, 1999. "Price Formation and Liquidity in the U.S. Treasury Market: The Response to Public Information," Journal of Finance, American Finance Association, vol. 54(5), pages 1901-1915, October.
    31. Dann, Larry Y. & Mayers, David & Raab, Robert Jr., 1977. "Trading rules, large blocks and the speed of price adjustment," Journal of Financial Economics, Elsevier, vol. 4(1), pages 3-22, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ligon, James A. & Liu, Hao-Chen, 2013. "The relation of trade size and price contribution in a traditional foreign exchange brokered market," Pacific-Basin Finance Journal, Elsevier, vol. 21(1), pages 1024-1045.
    2. Georges Hübner & Robert Joliet, 2013. "Government Debt Denomination Policies Before and After the EMU Advent," Open Economies Review, Springer, vol. 24(2), pages 283-309, April.
    3. Chris D'Souza & Charles Gaa, 2004. "The Effects of Economic News on Bond Market Liquidity," Staff Working Papers 04-16, Bank of Canada.
    4. repec:eee:finmar:v:33:y:2017:i:c:p:42-74 is not listed on IDEAS
    5. Han, Bing & Longstaff, Francis A. & Merrill, Craig, 2005. "The Cherry-Picking Option in the U.S. Treasury Buyback Auctions," Working Paper Series 2004-23, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    6. Brown, Alessio J. G. & Žarnić, Žiga, 2003. "Explaining the increased German credit spread: The role of supply factors," Kiel Advanced Studies Working Papers 412, Kiel Institute for the World Economy (IfW).
    7. De Santis, Roberto A. & Holm-Hadulla, Fédéric, 2017. "Flow effects of central bank asset purchases on euro area sovereign bond yields: evidence from a natural experiment," Working Paper Series 2052, European Central Bank.
    8. Seth Kopchak, 2014. "The absorption effect of US Treasury auctions," Review of Quantitative Finance and Accounting, Springer, vol. 43(1), pages 21-44, July.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wop:pennin:01-03. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel). General contact details of provider: http://edirc.repec.org/data/fiupaus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.