How Did Order-Flow Impact Bond Prices During the European Sovereign Debt Crisis?

24 Pages Posted: 30 Oct 2019

See all articles by Zhongguo Lin

Zhongguo Lin

Tianjin University

Youwei Li

Hull University Business School

Philip Anthony Hamill

Ulster University at Jordanstown

Zhuowei Sun

Queen's University Belfast - School of Management

James Waterworth

Queen's University Belfast, Students

Date Written: October 19, 2019

Abstract

The impact of trades on price dynamics in the European sovereign debt markets is of significant importance to policy makers and market participants. This paper uses high-frequency quote and transaction data from the MTS European sovereign bond inter-dealer platform to investigate price-order-flow dynamics from July 2005 until December 2011 for Germany, France, Portugal, Italy, Ireland, Spain and Greece. We find that order-flow had a larger impact on quote revision in a relatively low-intensity trading environment than in a relatively high-intensity trading environment implying that informed traders should only execute in low-intensity trading environments when they value immediacy over discretion. This analysis is consistent with the limited prior literature for European debt markets. Our analysis indicates that this relationship persists during turbulent market conditions. Also, we find that the impact of order-flow on subsequent trades was larger during periods of high-trading intensity implying that market participants use order splitting trading strategies.

Keywords: Order-flow, Price impact, Trading intensity, Sovereign Bonds

JEL Classification: G01, G23, G24

Suggested Citation

Lin, Zhongguo and Li, Youwei and Hamill, Philip Anthony and Sun, Zhuowei and Waterworth, James, How Did Order-Flow Impact Bond Prices During the European Sovereign Debt Crisis? (October 19, 2019). Available at SSRN: https://ssrn.com/abstract=3472439

Zhongguo Lin

Tianjin University ( email )

92, Weijin Road
Nankai District
Tianjin, Tianjin 300072
China
+86 18722679547 (Phone)

Youwei Li (Contact Author)

Hull University Business School ( email )

University of Hull
Hull, HU6 7RX
United Kingdom

Philip Anthony Hamill

Ulster University at Jordanstown ( email )

Newtownabbey
School of Accounting
County Antrim BT37 OQB, Northern Ireland
United Kingdom
02890365131 (Phone)

Zhuowei Sun

Queen's University Belfast - School of Management ( email )

25 University Square
Belfast, Northern Ireland BT7 1NN
Northern Ireland
0044-7899044099 (Phone)

James Waterworth

Queen's University Belfast, Students ( email )

25 University Square
Belfast
Ireland

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