Price Discovery in the Round-the-Clock U.S. Treasury Market

48 Pages Posted: 14 Oct 2008 Last revised: 16 Dec 2009

See all articles by Yan He

Yan He

Indiana University Southeast - School of Business

Hai Lin

Victoria University of Wellington - School of Economics & Finance

Junbo Wang

Dept. of Economics and Finance, City Univ. of HK

Chunchi Wu

SUNY at Buffalo - School of Management

Date Written: October 14, 2008

Abstract

We evaluate the efficacy of price discovery in the round-the-clock U.S. Treasury market. Using a comprehensive intraday database, we explore informational role of trades over the 24-hour day. We find that information asymmetry is generally highest in the preopen period and lowest in the postclose period. Information asymmetry in the overnight period is comparable to that in the regular trading period. However, on days with macroeconomic announcements, information asymmetry peaks shortly after the news release at 8:30. Moreover, information asymmetry is higher in Monday morning and higher immediately before than after the open of U.S. Treasury futures trading. Although volume is low after hours and trading cost is relatively high, overnight trading generates significant price discovery. Results suggest that overnight trading activity is an important part of the Treasury price discovery process.

Keywords: Price discovery, asymmetric information, liquidity provision, variance decomposition, after-hours trading

JEL Classification: G0, G14

Suggested Citation

He, Yan and Lin, Hai and Wang, Junbo and Wu, Chunchi, Price Discovery in the Round-the-Clock U.S. Treasury Market (October 14, 2008). Journal of Financial Intermediation, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1284377 or http://dx.doi.org/10.2139/ssrn.1284377

Yan He

Indiana University Southeast - School of Business ( email )

4201 Grant Line Road
New Albany, IN 47150
United States
812-941-2308 (Phone)
812-941-2672 (Fax)

Hai Lin (Contact Author)

Victoria University of Wellington - School of Economics & Finance ( email )

P.O. Box 600
Wellington 6001
New Zealand

Junbo Wang

Dept. of Economics and Finance, City Univ. of HK ( email )

83 Tat Chee Ave., Kowloon Tong
Kowloon Town
Kowloon, 220
Hong Kong
34429492 (Phone)
852-2788-8806 (Fax)

Chunchi Wu

SUNY at Buffalo - School of Management ( email )

Jacobs Management Center
Buffalo, NY 14222
United States

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