The Tail Wags the Dog: Time-Varying Information Shares in the Bund Market

43 Pages Posted: 25 Sep 2007

See all articles by Christian Upper

Christian Upper

Bank for International Settlements (BIS)

Thomas Werner

European Central Bank (ECB)


The paper analyses the information content of trades in Bund futures and German government bonds before and during the 1998 financial market turbulences and tests whether the contributions to price discovery of the two market segments were constant over time. The results suggest that, under the normal market conditions prevailing in the first half of the year, between 19% and 33% of the variation in the efficient price was due to trading in the spot market. In the aftermath of the recapitalisation of LTCM, by contrast, the bond market's share in price discovery dropped to zero, with information becoming incorporated into prices only in the futures market. This decline can be traced to an unusually high proportion of large client trades that were executed against dealer inventory, which suggests that they were primarily motivated by liquidity rather than by information. On the methodological side, the paper computes information shares and factor weights based on the Gonzalo-Granger decomposition in markets with different trading frequencies. In addition, the paper captures variations over time by using a sequence of break point tests.

Keywords: Information shares, bond futures, upstairs markets

JEL Classification: G13, G14

Suggested Citation

Upper, Christian and Werner, Thomas, The Tail Wags the Dog: Time-Varying Information Shares in the Bund Market. BIS Working Paper No. 224, Available at SSRN: or

Christian Upper (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002

Thomas Werner

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics