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PRICE DISCOVERY IN THE ITALIAN SOVEREIGN BONDS MARKET: THE ROLE OF ORDER FLOW

Alessandro Girardi () and Claudio Impenna
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Claudio Impenna: Bank of Italy

No 13108, Working Papers LuissLab from Dipartimento di Economia e Finanza, LUISS Guido Carli

Abstract: This paper analyses the price discovery process and the informational role of trading in the Italian wholesale secondary markets for Treasury bonds: the business-to-business (B2B), interdealer and quote driven MTS cash and the business-to-consumer (B2C), order driven BondVision trading venues. Using daily data for a representative set of fixed rate government bonds over the period January 2007 - February 2012, we find that the B2C dealer-to-customer market contributes to the process of price formation to a greater extent than the B2B interdealer platform. The informational role of trading is found to be considerable: order flow is a key variable in the process of price formation and appears to continuously act on a cross market basis. Moreover, the explanatory role of order flow turns out to be stronger when liquidity conditions are poorer.

Keywords: bonds markets; price discovery; order flow; market microstructure; financial crisis. (search for similar items in EconPapers)
JEL-codes: G1 G2 (search for similar items in EconPapers)
Date: 2013
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Working Paper: Price discovery in the Italian sovereign bonds market: the role of order flow (2013) Downloads
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