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Price Discovery in the U.S. Treasury Market: Automation vs. Intermediation

Author

Listed:
  • Kasing Man

    (Department of Economics and Decision Sciences, Western Illinois University, Macomb, Illinois 61455)

  • Junbo Wang

    (Department of Economics and Finance, City University of Hong Kong, Kowloon, Hong Kong)

  • Chunchi Wu

    (School of Management, State University of New York, Buffalo, New York 14260)

Abstract

This paper examines the contribution to price discovery by electronic and voice-based trading systems in the U.S. Treasury market. Evidence shows that the electronic trading system has more price discovery and that trading automation increases the speed of incorporating information into prices. However, human trading generates significant price discovery, though its volume is low. The relative contribution of a trading system to price discovery depends on liquidity, volatility, volume, trade size, and order imbalance. The voice-based trading system contributes more to price discovery when trade size is large and liquidity is low. These findings provide important implications for the design of electronic markets for securities with different characteristics and trading environments. This paper was accepted by Wei Xiong, finance.

Suggested Citation

  • Kasing Man & Junbo Wang & Chunchi Wu, 2013. "Price Discovery in the U.S. Treasury Market: Automation vs. Intermediation," Management Science, INFORMS, vol. 59(3), pages 695-714, September.
    • Handle: RePEc:inm:ormnsc:v:59:y:2013:i:3:p:695-714
    DOI: 10.1287/mnsc.1120.1559
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    References listed on IDEAS

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    3. Lin, Hai & Lo, Ingrid & Qiao, Rui, 2021. "Macroeconomic news announcements and market efficiency: Evidence from the U.S. Treasury market," Journal of Banking & Finance, Elsevier, vol. 133(C).
    4. William Mingyan Cheung & James Chicheong Lei & Desmond Tsang, 2016. "Does Property Transaction Matter in the Price Discovery of Real Estate Markets?," International Real Estate Review, Global Social Science Institute, vol. 19(1), pages 27-49.
    5. Jacob Gyntelberg & Peter Hördahl & Kristyna Ters & Jörg Urban, 2013. "Intraday dynamics of euro area sovereign CDS and bonds," BIS Working Papers 423, Bank for International Settlements.
    6. Papavassiliou, Vassilios G. & Kinateder, Harald, 2021. "Information shares and market quality before and during the European sovereign debt crisis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 72(C).
    7. Natashekara, Karthik & Sampath, Aravind, 2024. "Informed trading and cryptocurrencies. New evidence using tick-by-tick data," Finance Research Letters, Elsevier, vol. 61(C).
    8. Kristyna Ters & Jörg Urban, 2018. "Estimating unknown arbitrage costs: evidence from a three-regime threshold vector error correction model," BIS Working Papers 689, Bank for International Settlements.
    9. Gyntelberg, Jacob & Hördahl, Peter & Ters, Kristyna & Urban, Jörg, 2018. "Price discovery in euro area sovereign credit markets and the ban on naked CDS," Journal of Banking & Finance, Elsevier, vol. 96(C), pages 106-125.

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