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Customer Order Flow, Intermediaries, and Discovery of the Equilibrium Risk-free RateAlbert J. MenkveldVU University Amsterdam; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA); Duisenberg School of Finance Asani SarkarFederal Reserve Bank of New York Michel Van der WelErasmus University Rotterdam; CREATES; ERIM; Tinbergen Institute March 9, 2011 Journal of Financial and Quantitative Analysis (JFQA), 17, 821-849 EFA 2007 Ljubljana Meetings Paper FRB of New York Staff Report No. 307 Abstract: Macro announcements change the equilibrium riskfree rate. We find that treasury prices reflect part of the impact instantaneously, but intermediaries rely on their customer order flow after the announcement to discover the full impact. This customer flow informativeness is strongest when analyst macro forecasts are most dispersed. The result holds for 30-year treasury futures trading in both electronic and open-outcry markets. We further show that intermediaries benefit from privately recognizing informed customer flow, as their own-account trading profitability correlates with customer order access.
Number of Pages in PDF File: 44 Keywords: riskfree rate, macroeconomic announcements, customer order flow, intermediary, treasury futures JEL Classification: G14, E44 working papers seriesDate posted: March 1, 2007 ; Last revised: November 20, 2012Suggested CitationContact Information
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