Clients' Connections: Measuring the Role of Private Information in Decentralised Markets

84 Pages Posted: 2 Aug 2019

See all articles by Peter Kondor

Peter Kondor

London School of Economics & Political Science (LSE); Central European University (CEU)

Gabor Pinter

Bank of England

Date Written: July 2019

Abstract

We propose a new measure of private information in decentralised markets -- connections -- defined as the number of dealers with whom a client trades in a time period. Using proprietary data for the UK government bond market, we show that clients have systematically better performance when having more connections, and this effect is stronger during macroeconomic announcements. Time-variation in market-wide connections also helps explain yield dynamics. Given our novel measure, we present two applications suggesting that (i) dealers pass on information, acquired from their informed clients, to their subsidiaries, and (ii) informed clients better predict the order-flow intermediated by their dealers.

Keywords: Client-Dealer Connections, Government Bond Market, private information

JEL Classification: G12, G14, G24

Suggested Citation

Kondor, Peter and Pinter, Gabor, Clients' Connections: Measuring the Role of Private Information in Decentralised Markets (July 2019). CEPR Discussion Paper No. DP13880, Available at SSRN: https://ssrn.com/abstract=3428404

Peter Kondor (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://fmg.lse.ac.uk/~kondor

Central European University (CEU) ( email )

Nador utca 9
Budapest, H-1051
Hungary

Gabor Pinter

Bank of England ( email )

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