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Inventory Information

Huining Cao (), Richard Lyons () and Martin Evans ()

No 9893, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In a market with symmetric information about fundamentals, can information-based trade still arise? Consider bond and FX markets, where private information about nominal cash flows is generally absent, but participants are convinced that superior information exists. We analyze a class of asymmetric information - inventory information - that is unrelated to fundamentals, but still forecasts future price (by forecasting future discount factors). Empirical work based on the analysis shows that inventory information in FX does indeed forecast discount factors, and does so over both short and long horizons. The immediate price impact of shocks to inventory information is large, roughly 50 percent of that from public information shocks (the latter being the whole story under symmetric information). Within about 30 minutes the transitory effect dies out, and prices reflect a permanent effect from inventory information that ranges between 15 and 30 percent of that from public information.

JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2003-08
New Economics Papers: this item is included in nep-cfn and nep-ifn
Note: AP
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Published as H. Henry Cao & Martin D. Evans & Richard K. Lyons, 2006. "Inventory Information," Journal of Business, University of Chicago Press, vol. 79(1), pages 325-364, January.

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Chapter: Inventory Information (2017) Downloads
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