Clients' Connections: Measuring the Role of Private Information in Decentralized Markets
Péter Kondor and
Gabor Pinter
Journal of Finance, 2022, vol. 77, issue 1, 505-544
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.
Date: 2022
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https://doi.org/10.1111/jofi.13087
Related works:
Working Paper: 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:bla:jfinan:v:77:y:2022:i:1:p:505-544
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