Price Formation and Liquidity in the U.S. Treasury Market: The Response to Public Information

Authors: Fleming, Michael J.¹; Remolona, Eli M.²

Source: The Journal of Finance, Volume 54, Number 5, October 1999 , pp. 1901-1915(15)

Publisher: Blackwell Publishing

Key:

- Free Content

- New Content

- Subscribed Content

- Free Trial Content

Abstract:

The arrival of public information in the U.S. Treasury market sets off a two-stage adjustment process for prices, trading volume, and bid-ask spreads. In a brief first stage, the release of a major macroeconomic announcement induces a sharp and nearly instantaneous price change with a reduction in trading volume, demonstrating that price reactions to public information do not require trading. The spread widens dramatically at announcement, evidently driven by inventory control concerns. In a prolonged second stage, trading volume surges, price volatility persists, and spreads remain moderately wide as investors trade to reconcile residual differences in their private views.

Document Type: Research article

DOI: 10.1111/0022-1082.00172

Affiliations: 1: Federal Reserve Bank of New York, 2: Bank for International Settlements and the Federal Reserve Bank of New York

The full text electronic article is available for purchase. You will be able to download the full text electronic article after payment.

$41.72 plus tax Refund Policy