Informed trading in hybrid bond markets

Valseth, Siri

doi:10.1016/j.gfj.2018.07.003

Cited by 3 publications

(1 citation statement)

References 12 publications

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“…First, Valseth (2013) documents that interdealer order flow is more informative than customer order flow. Second, Valseth (2018) documents that informed dealers prefer the LOB to the OTC-market because the immediacy of the LOB better protects their information. 5 Also, the order sign available for LOB trades makes it straightforward to calculate LOB order flow, while calculation of OTC order flows relies on applying rules like the Lee and Ready (1991) algorithm.…”

Section: Datamentioning

confidence: 99%

Challenging the spanning hypothesis at short horizons: Evidence from Norway

Valseth

2019

Journal of Forecasting

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The spanning hypothesis states that the yield curve reflects all available information about future yields. This paper challenges the hypothesis by investigating the predictive power of bond market order flow while controlling for principal components extracted from the current yield curve. The results show that order flows aggregated from interdealer trades in Norwegian government bonds can predict yield changes and excess returns both in‐sample and out‐of‐sample at the daily and weekly horizons. This suggests that bond dealers possess information about future bond yields that is not yet incorporated into the yield curve. Forecasts based on microstructure data can thus be valuable for short term investors.

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Section: Datamentioning

confidence: 99%