Price Discovery and Trade Fragmentation in a Multi - Market Environment: Evidence from the MTS System

42 Pages Posted: 26 Jul 2011

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Alessandro Girardi

National Institute of Statistics (ISTAT)

Date Written: July 26, 2011

Abstract

This paper proposes new metrics for the process of price discovery on the main electronic trading platform for euro - denominated government securities. Analyzing price data on daily transactions for 107 bonds over a period of twenty - seven months, we find a greater degree of price leadership of the dominant market when our measures (as opposed to the traditional price discovery metrics) are used. We also present unambiguous evidence that a market’s contribution to price discovery is crucially affected by the level of trading activity. The implications of these empirical findings are discussed in the light of the debate about the possible restructuring of the regulatory framework for the Treasury bond market in Europe.

Keywords: price discovery, liquidity, MTS system

JEL Classification: G100, C210, C320

Suggested Citation

Caporale, Guglielmo Maria and Girardi, Alessandro, Price Discovery and Trade Fragmentation in a Multi - Market Environment: Evidence from the MTS System (July 26, 2011). CESifo Working Paper Series No. 3525, Available at SSRN: https://ssrn.com/abstract=1895300

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

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HOME PAGE: http://www.brunel.ac.uk/about/acad/bbs/bbsstaff/ef_staff/guglielmocaporale/

London South Bank University ( email )

Centre for Monetary and Financial Economics
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United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

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Germany

German Institute for Economic Research (DIW Berlin) ( email )

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Berlin, 10117
Germany

Alessandro Girardi

National Institute of Statistics (ISTAT) ( email )

Via Cesare Balbo 16
00184 Rome, 0185
Italy

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