Private information and client connections in government bond markets

Péter Kondor and Gabor Pinter

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: In government bond markets the number of dealers with whom clients trade changes through time. Our paper shows that this time-variation in clients’ connections serves as a proxy for time-variation in private information. Using proprietary data covering close to all dealer-client transactions in the UK government bond market, we show that clients have systematically better performance when trading with more dealers, and this effect is stronger during macroeconomic announcements. Most of the effect comes from clients’ increased ability to predict future yield changes (anticipation component) rather than these clients facing tighter bid-ask spreads (transaction component). To explore the nature of this private information, we find that clients with increased dealer connections can better predict the fraction of the aggregate order flow that is intermediated by dealers they regularly trade with. Positive trading performance is concentrated in those periods when clients have more dealer connections than usual.

Keywords: Government Bond Market; Private Information; Client-Dealer Connections (search for similar items in EconPapers)
JEL-codes: G12 G14 G24 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2019-01-02
New Economics Papers: this item is included in nep-fmk and nep-mst
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Downloads: (external link)
http://eprints.lse.ac.uk/100931/ Open access version. (application/pdf)

Related works:
Working Paper: Private Information and Client Connections in Government Bond Markets (2019)
Working Paper: Private Information and Client Connections in Government Bond Markets (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:100931

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