Clients’ connections: measuring the role of private information in decentralized markets

Péter Kondor and Gabor Pinter

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

Abstract: We propose a new measure of private information in decentralized markets—connections—which exploits the time variation in the number of dealers with whom a client trades in a time period. Using trade-level data for the U.K. government bond market, we show that clients perform better when having more connections as their trades predict future price movements. Time variation in market-wide connections also helps explain yield dynamics. Given our novel measure, we present two applications suggesting that (i) dealers pass on information, acquired from their informed clients, to their affiliates, and (ii) informed clients better predict the orderflow intermediated by their dealers.

JEL-codes: F3 G3 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2022-02-01
New Economics Papers: this item is included in nep-mst
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Citations: View citations in EconPapers (7)

Published in Journal of Finance, 1, February, 2022, 77(1), pp. 505 - 544. ISSN: 1540-6261

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http://eprints.lse.ac.uk/110861/ Open access version. (application/pdf)

Related works:
Journal Article: Clients' Connections: Measuring the Role of Private Information in Decentralized Markets (2022)
Working Paper: Clients' Connections: Measuring the Role of Private Information in Decentralised Markets (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:110861

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