Computer-Based Trading, Institutional Investors and Treasury Bond Returns

64 Pages Posted: 27 Aug 2018 Last revised: 29 Aug 2018

See all articles by Xiaoquan Liu

Xiaoquan Liu

Nottingham University Business School

Ingrid Lo

Bank of Canada

Minh Nguyen

Newcastle University Business School

Giorgio Valente

Hong Kong Institute for Monetary and Financial Research (HKIMR)

Date Written: August 17, 2018

Abstract

This study provides a comprehensive analysis of the effects of Computer-based Trad-ing (CBT) on Treasury bond expected returns. We document a strong relationship between bond expected returns and the overall intensity at which CBT takes place in the Treasury market. Investing in bonds with the largest beta to the aggregate CBT intensity and shorting those with the smallest generates large and significant returns. Those returns are not due to compensation for facing conventional sources of risk or to transaction costs. Our results are consistent with capital-flow based explanations implied by asset pricing models with institutional investors.

Keywords: Computer-based Trading, Asset Pricing, Institutional Investors, Asset Allocation

JEL Classification: F31, G10

Suggested Citation

Liu, Xiaoquan and Lo, Ingrid and Nguyen, Minh and Valente, Giorgio, Computer-Based Trading, Institutional Investors and Treasury Bond Returns (August 17, 2018). Available at SSRN: https://ssrn.com/abstract=3233341 or http://dx.doi.org/10.2139/ssrn.3233341

Xiaoquan Liu

Nottingham University Business School ( email )

199 Taikang East Road
Yingzhou
Ningbo, Zhejiang 315100
China

Ingrid Lo

Bank of Canada ( email )

234 Wellington Street
Ottawa, Ontario K1A 0G9
Canada

Minh Nguyen

Newcastle University Business School ( email )

Newcastle upon Tyne, NE1 7RU
United Kingdom

Giorgio Valente (Contact Author)

Hong Kong Institute for Monetary and Financial Research (HKIMR) ( email )

One Pacific Place, 10th Floor
88 Queensway
Hong Kong
China

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