Price Formation and Liquidity in the U.S. Treasury Market: Evidence from Intraday Patterns Around Announcements
Michael J. Fleming
Federal Reserve Bank of New York
Eli M. Remolona
Bank for International Settlements (BIS) - Monetary and Economic Department
FRB of New York Staff Report No. 27
We identify striking adjustment patterns for price volatility, trading volume, and bid-ask spreads in the U.S. Treasury market when public information arrives. Using newly available high-frequency data, we find a notable lack of trading volume upon a major announcement when prices are most volatile. The bid-ask spread widens dramatically with price volatility and narrows just as dramatically with trading volume. Trading volume surges only after an appreciable lag following the announcement. High levels of price volatility and trading volume then persist, with volume persisting somewhat longer.
Number of Pages in PDF File: 55
JEL Classification: G14
Date posted: November 11, 2006
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