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Information Shocks, Liquidity Shocks, Jumps, and Price Discovery – Evidence from the U.S. Treasury Market Discussion by Clifton Green (Emory University) Better understand jumps in Treasury markets Look at influence of liquidity on jumps Jumps

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information shocks liquidity shocks jumps and price discovery evidence from the u s treasury market
Information Shocks, Liquidity Shocks, Jumps, and Price Discovery – Evidence from the U.S. Treasury Market

Discussion by

Clifton Green (Emory University)

  • Better understand jumps in Treasury markets
  • Look at influence of liquidity on jumps
jumps
Jumps
  • Security returns are better explained with continuous processes that include jumps
    • Relevant for pricing and risk management
  • What horizon is relevant?
    • Replicating portfolio
    • What do practitioners say?
source of jumps
Source of Jumps
  • “ A large price change occurs either when
    • A market order hits the existing limit orders following the announcement
    • New limit orders come in and set a new price moving the existing mid-quote up/down. “
    • Is the data able to distinguish between these two causes of jumps?
      • Not just quotes but full limit order book
    • Public information vs. private information
      • For public information, active vs. passive changing of quotes
news vs no news jumps
News vs. No-News Jumps
  • Source of jump may be different between news and no-news jumps
    • Are no-news jumps informed trading or unanticipated news?
    • Do no-news jumps happen concurrently across bonds?
  • Perhaps extend the sample back to 2003 to get more observations
    • 10% of jumps are no-news
liquidity and jumps
Liquidity and Jumps
  • “Liquidity shocks in general precede jumps in bond prices and play an important role in bond price jumps”
  • Could selection bias play a role?
    • Reduction in liquidity could be random
    • For no-news jumps, examine depth at bid or ask (jump specific)
  • Liquidity vs. informed trading
    • Look for reversals over longer periods