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Who Values Economist Forecasts? Evidence From Trading in Treasury Markets

Author

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  • James, Robert
  • Jarnecic, Elvis
  • Leung, Henry

Abstract

While economic forecasting is ubiquitous within the industry, its role in the trading process has received little attention in the literature. We examine how economist forecasts are related to trading activity in the OTC treasury bond market at the participant level. Consistent with models of heterogeneous opinions, we show that the forecasting economists employing institution places a disproportionately large reliance on the forecast. There is pervasive evidence that this reliance is asymmetric. Only forecasts which imply a fall in future treasury bond prices are associated with an abnormal trading reaction consistent with the forecast. Reference dependence and loss aversion offer one possible explanation for this asymmetric trading response.

Suggested Citation

  • James, Robert & Jarnecic, Elvis & Leung, Henry, 2022. "Who Values Economist Forecasts? Evidence From Trading in Treasury Markets," Journal of Financial Intermediation, Elsevier, vol. 49(C).
    • Handle: RePEc:eee:jfinin:v:49:y:2022:i:c:s1042957321000358
    DOI: 10.1016/j.jfi.2021.100934
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    References listed on IDEAS

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    More about this item

    Keywords

    Over-The-Counter markets; Market microstructure; Treasury Bond markets; Macroeconomic information; Research analyst forecasts;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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