44 Pages Posted: 1 Mar 2007 Last revised: 20 Nov 2012
Date Written: March 9, 2011
Macro announcements change the equilibrium riskfree rate. We find that treasury prices reflect part of the impact instantaneously, but intermediaries rely on their customer order flow after the announcement to discover the full impact. This customer flow informativeness is strongest when analyst macro forecasts are most dispersed. The result holds for 30-year treasury futures trading in both electronic and open-outcry markets. We further show that intermediaries benefit from privately recognizing informed customer flow, as their own-account trading profitability correlates with customer order access.
Keywords: riskfree rate, macroeconomic announcements, customer order flow, intermediary, treasury futures
JEL Classification: G14, E44
Suggested Citation: Suggested Citation
Menkveld, Albert J. and Sarkar, Asani and van der Wel, Michel, Customer Order Flow, Intermediaries, and Discovery of the Equilibrium Risk-free Rate (March 9, 2011). Journal of Financial and Quantitative Analysis (JFQA), 17, 821-849; EFA 2007 Ljubljana Meetings Paper; FRB of New York Staff Report No. 307. Available at SSRN: https://ssrn.com/abstract=966059 or http://dx.doi.org/10.2139/ssrn.966059