Private Information Flow and Price Discovery in the U.S. Treasury Market
43 Pages Posted: 1 Sep 2012 Last revised: 29 Dec 2016
Date Written: July 2014
Using intraday data, we identify the intensity of private information flow in the U.S. Treasury market. Our results show that the intensity of private information flow is highly correlated with public information shocks and higher for longer maturity bonds. More importantly, we find that bond price changes associated with high intensity of private information flow tend to be persistent, whereas those associated with low intensity of private information flow are more likely reversed. While public information and private information are the main determinants of bond price variations on days with news announcements, private information and liquidity shocks are important determinants of bond price variations on days with no significant events. Finally, we show that the depth of limit order book is inversely related to the intensity of private information flow. Nevertheless, informed dealers do not seem to use hidden orders to disguise their trading intentions.
Keywords: Private information flow; Public information shocks; Price discovery; Order flow impact; Bond return volatility; Depth of limit order book
JEL Classification: G12; G14
Suggested Citation: Suggested Citation