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Keywords:Price discovery 

Working Paper
Price Discovery in the U.S. Treasury Cash Market: On Principal Trading Firms and Dealers

We explore the following question: does the trading activity of registered dealers on Treasury interdealer broker (IDB) platforms differ from that of principal trading firms (PTFs), and if so, how and to what effect on market liquidity? To do so, we use a novel dataset that combines Treasury cash transaction reports from FINRA’s Trade Reporting and Compliance Engine (TRACE) and publicly available limit order book data from BrokerTec. We find that trades conducted in a limit order book setting have high permanent price impact when a PTF is the passive party, playing the role of ...
Finance and Economics Discussion Series , Paper 2020-096

Working Paper
Is the Intrinsic Value of Macroeconomic News Announcements Related to their Asset Price Impact?

The literature documents a heterogeneous asset price response to macroeconomic news announcements. We explain this variation with a novel measure of the intrinsic value of an announcement - the announcement's ability to nowcast GDP growth, inflation, and the Federal Funds Target Rate-and decompose it into the announcement's relation to fundamentals, a timeliness premium, and a revision premium. We find that differences in intrinsic value can explain a significant fraction of the variation in the announcements' price impact on Treasury bond yields. The announcements' timeliness and relation to ...
Finance and Economics Discussion Series , Paper 2015-46

Working Paper
Words Speak as Loudly as Actions: Central Bank Communication and the Response of Equity Prices to Macroeconomic Announcements

While the literature has already widely documented the effects of macroeconomic news announcements on asset prices, as well as their asymmetric impact during good and bad times, we focus on the reaction to news based on the description of the state of the economy as painted by the Federal Open Market Committee (FOMC) statements. We develop a novel FOMC sentiment index using textual analysis techniques, and find that news has a bigger (smaller) effect on equity prices during bad (good) times as described by the FOMC sentiment index. Our analysis suggests that the FOMC sentiment index offers a ...
Finance and Economics Discussion Series , Paper 2021-074

Working Paper
The Evolution of Price Discovery in an Electronic Market

We study the evolution of the price discovery process in the euro-dollar and dollar-yen currency pairs over a ten-year period on the EBS platform, a global trading venue used by both manual and automated traders. We find that the importance of market orders decreases sharply over that period, owing mainly to a decline in the information share from manual trading, while the information share of market orders from algorithmic and high-frequency traders remains fairly constant. At the same time, there is a substantial, but gradual, increase in the information share of limit orders. Price ...
Finance and Economics Discussion Series , Paper 2020-051

Working Paper
Price Pressure and Price Discovery in the Term Structure of Interest Rates

We study the price pressure and price discovery effects in the U.S. Treasury market by using a term structure model. Our model decomposes yield curve shifts into two components: a virtually permanent change related to order flow and a transitory, price pressure effect due to dealer inventories. We find strong evidence that net dealer Treasury inventories has impact on the yield curve. Cash Treasury instruments in inventory have a larger impact on yields than futures contracts, suggesting that cash and futures inventories are not perfect substitutes. Price discovery in the level of interest ...
Finance and Economics Discussion Series , Paper 2018-065

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