Price Discovery in the Italian Sovereign Bonds Market: The Role of Order Flow

57 Pages Posted: 4 May 2013

See all articles by Alessandro Girardi

Alessandro Girardi

National Institute of Statistics (ISTAT)

Claudio Impenna

Bank of Italy

Date Written: April 24, 2013

Abstract

This paper analyses the price discovery process and the informational role of trading in the Italian wholesale secondary markets for Treasury bonds: the B2B MTS cash and the B2C 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

JEL Classification: G1, G2

Suggested Citation

Girardi, Alessandro and Impenna, Claudio, Price Discovery in the Italian Sovereign Bonds Market: The Role of Order Flow (April 24, 2013). Bank of Italy Temi di Discussione (Working Paper) No. 906, Available at SSRN: https://ssrn.com/abstract=2259644 or http://dx.doi.org/10.2139/ssrn.2259644

Alessandro Girardi

National Institute of Statistics (ISTAT) ( email )

Via Cesare Balbo 16
00184 Rome, 0185
Italy

Claudio Impenna (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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