Price Discovery in the Treasury Futures Market

36 Pages Posted: 19 Nov 2006

See all articles by Michael W. Brandt

Michael W. Brandt

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Shane Underwood

Baylor University

Kenneth A. Kavajecz

Edgewood College; Phoenix Rising Advisory

Date Written: November 2006

Abstract

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

Brandt, Michael W. and Underwood, Shane and Kavajecz, Kenneth A., Price Discovery in the Treasury Futures Market (November 2006). Available at SSRN: https://ssrn.com/abstract=945081 or http://dx.doi.org/10.2139/ssrn.945081

Michael W. Brandt

Duke University - Fuqua School of Business ( email )

1 Towerview Drive
Durham, NC 27708-0120
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Shane Underwood (Contact Author)

Baylor University ( email )

P.O. Box 98004
Waco, TX 76798-8004
United States
254-710-4524 (Phone)

Kenneth A. Kavajecz

Edgewood College ( email )

1000 Edgewood College Dr.
Madison, WI 53711
United States
6087704677 (Phone)

Phoenix Rising Advisory ( email )

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MADISON, WI 53703
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