Price and Size Discovery in Financial Markets: Evidence from the U.S. Treasury Securities Market

Forthcoming in Review of Asset Pricing Studies

56 Pages Posted: 11 Aug 2013 Last revised: 30 Oct 2018

See all articles by Michael J. Fleming

Michael J. Fleming

Federal Reserve Bank of New York

Giang Nguyen

Pennsylvania State University - Smeal College of Business

Date Written: August 1, 2013

Abstract

We study the workup protocol, an important size discovery mechanism in the U.S. Treasury securities market. We find that shocks in workup order flow explain 6-8 percent of the variation of returns on benchmark notes and, across maturities, contribute 10 percent to the variation of the yield curve level factor. Information related to proprietary client order flow is more likely to show up in workup trades, whereas information derived from public announcements is more likely to come through pre-workup (or “lit”) trades. Our findings highlight how the nature of information affects the trade-off between speed and execution price as informed traders choose between the lit and workup channels.

Keywords: dark pool, liquidity, price impact, information share, fixed income market

JEL Classification: G12, G14, G18, G01

Suggested Citation

Fleming, Michael J. and Nguyen, Giang, Price and Size Discovery in Financial Markets: Evidence from the U.S. Treasury Securities Market (August 1, 2013). Forthcoming in Review of Asset Pricing Studies. Available at SSRN: https://ssrn.com/abstract=2308099 or http://dx.doi.org/10.2139/ssrn.2308099

Michael J. Fleming (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-6372 (Phone)
212-720-1582 (Fax)

HOME PAGE: http://www.newyorkfed.org/research/economists/fleming/

Giang Nguyen

Pennsylvania State University - Smeal College of Business ( email )

University Park, PA 16802
United States

HOME PAGE: http://directory.smeal.psu.edu/gxn13

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