Price Discovery in the Italian Sovereign Bonds Market: The Role of Order Flow
57 Pages Posted: 4 May 2013
Date Written: April 24, 2013
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: Suggested Citation