Price Discovery in the Treasury Futures Market
36 Pages Posted: 19 Nov 2006
Date Written: November 2006
We investigate the mechanism by which price discovery takes place within the futures market for U.S Treasury securities. Specifically, given the strong theoretical linkage between the U.S. Treasury cash and futures markets, we compare how orderflow contributes to price discovery as well as analyze how and when information flows from one market to the other. We also consider how a number of environmental variables (trader type, financing rates and liquidity) impact the information flows between these two markets. Our findings provide new evidence on the extent to which price discovery happens away from a primary market.
Keywords: price discovery, futures, order flow
JEL Classification: G14, G19
Suggested Citation: Suggested Citation