The cross-market information content of stock and bond order flow

Shane Underwood

Journal of Financial Markets, 2009, vol. 12, issue 2, 268-289

Abstract: In this paper I test the hypothesis that trading activity in the stock and bond markets contains important marketwide pricing information. Using a large sample of actively traded stocks and U.S. Treasury securities, I find that aggregate order imbalances play a strong role in explaining cross-market returns. I interpret this as evidence that aggregate order flow reveals information about the risk preferences, beliefs, and endowments of the investor population that is relevant for pricing securities in both markets. I also find evidence that cross-market hedging is an important source of linkages across the two markets, especially during periods of elevated equity volatility.

Keywords: Cross-markets; Stock-bond; relationship; Order; flow (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:12:y:2009:i:2:p:268-289

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