IDEAS home Printed from https://ideas.repec.org/a/wly/jfutmk/v39y2019i7p779-802.html
   My bibliography  Save this article

The impact of the US stock market opening on price discovery of government bond futures

Author

Listed:
  • Ivan Indriawan
  • Feng Jiao
  • Yiuman Tse

Abstract

We examine price discovery in sequential markets for the 10‐year US Treasury note, German bund, and UK gilt futures over the period 2010–2017. We find that price discovery increases after the opening of the US stock market. Order flows in the bond futures markets are more informative for permanent price changes in the 30‐min period after the US stock market opens. A placebo test using US statutory holidays confirms our findings. A cross‐market analysis suggests that the increased price discovery in the bond futures is related to returns and net order flows of the US stock market.

Suggested Citation

  • Ivan Indriawan & Feng Jiao & Yiuman Tse, 2019. "The impact of the US stock market opening on price discovery of government bond futures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(7), pages 779-802, July.
    • Handle: RePEc:wly:jfutmk:v:39:y:2019:i:7:p:779-802
    DOI: 10.1002/fut.22015
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/fut.22015
    Download Restriction: no
    File URL: https://libkey.io/10.1002/fut.22015?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Berry, Thomas D & Howe, Keith M, 1994. "Public Information Arrival," Journal of Finance, American Finance Association, vol. 49(4), pages 1331-1346, September.
    2. Alex Frino & Roland Winn, 2001. "The impact of lunchtime closure on market behaviour: evidence from the Sydney Futures Exchange," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 41(1‐2), pages 25-40, July.
    3. Wasserfallen, Walter & Zimmermann, Heinz, 1985. "The behavior of intra-daily exchange rates," Journal of Banking & Finance, Elsevier, vol. 9(1), pages 55-72, March.
    4. Michael Ehrmann & Marcel Fratzscher & Roberto Rigobon, 2011. "Stocks, bonds, money markets and exchange rates: measuring international financial transmission," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(6), pages 948-974, September.
    5. Fricke, Christoph & Menkhoff, Lukas, 2011. "Does the "Bund" dominate price discovery in Euro bond futures? Examining information shares," Journal of Banking & Finance, Elsevier, vol. 35(5), pages 1057-1072, May.
    6. Cai, Fang & Howorka, Edward & Wongswan, Jon, 2008. "Informational linkages across trading regions: Evidence from foreign exchange markets," Journal of International Money and Finance, Elsevier, vol. 27(8), pages 1215-1243, December.
    7. Fleming, Jeff & Kirby, Chris & Ostdiek, Barbara, 1998. "Information and volatility linkages in the stock, bond, and money markets," Journal of Financial Economics, Elsevier, vol. 49(1), pages 111-137, July.
    8. Michael W. Brandt & Kenneth A. Kavajecz & Shane E. Underwood, 2007. "Price discovery in the treasury futures market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 27(11), pages 1021-1051, November.
    9. Mitchell, Mark L & Mulherin, J Harold, 1994. "The Impact of Public Information on the Stock Market," Journal of Finance, American Finance Association, vol. 49(3), pages 923-950, July.
    10. Connolly, Robert & Stivers, Chris & Sun, Licheng, 2005. "Stock Market Uncertainty and the Stock-Bond Return Relation," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(1), pages 161-194, March.
    11. Leach, J Chris & Madhavan, Ananth N, 1993. "Price Experimentation and Security Market Structure," The Review of Financial Studies, Society for Financial Studies, vol. 6(2), pages 375-404.
    12. Werner, Ingrid M & Kleidon, Allan W, 1996. "U.K. and U.S. Trading of British Cross-Listed Stocks: An Intraday Analysis of Market Integration," The Review of Financial Studies, Society for Financial Studies, vol. 9(2), pages 619-664.
    13. d'Addona, Stefano & Kind, Axel H., 2006. "International stock-bond correlations in a simple affine asset pricing model," Journal of Banking & Finance, Elsevier, vol. 30(10), pages 2747-2765, October.
    14. Amihud, Yakov & Mendelson, Haim, 1991. "Volatility, Efficiency, and Trading: Evidence from the Japanese Stock Market," Journal of Finance, American Finance Association, vol. 46(5), pages 1765-1789, December.
    15. Kanas, Angelos, 2014. "Bond futures, inflation-indexed bonds, and inflation risk premium," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 28(C), pages 82-99.
    16. Lee, Charles M C & Ready, Mark J, 1991. "Inferring Trade Direction from Intraday Data," Journal of Finance, American Finance Association, vol. 46(2), pages 733-746, June.
    17. Opschoor, Anne & Taylor, Nick & van der Wel, Michel & van Dijk, Dick, 2014. "Order flow and volatility: An empirical investigation," Journal of Empirical Finance, Elsevier, vol. 28(C), pages 185-201.
    18. Muzhao Jin & Youwei Li & Jianxin Wang & Yung Chiang Yang, 2018. "Price discovery in the Chinese gold market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(10), pages 1262-1281, October.
    19. Dow, James & Gorton, Gary, 1993. "Trading, Communication and the Response of Asset Prices to News," Economic Journal, Royal Economic Society, vol. 103(418), pages 639-646, May.
    20. Avino, Davide & Lazar, Emese & Varotto, Simone, 2015. "Time varying price discovery," Economics Letters, Elsevier, vol. 126(C), pages 18-21.
    21. Gonzalo, Jesus & Granger, Clive W J, 1995. "Estimation of Common Long-Memory Components in Cointegrated Systems," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(1), pages 27-35, January.
    22. Mizrach, Bruce & Neely, Christopher J., 2008. "Information shares in the US Treasury market," Journal of Banking & Finance, Elsevier, vol. 32(7), pages 1221-1233, July.
    23. He, Yan & Lin, Hai & Wang, Junbo & Wu, Chunchi, 2009. "Price discovery in the round-the-clock U.S. Treasury market," Journal of Financial Intermediation, Elsevier, vol. 18(3), pages 464-490, July.
    24. Nicholas Taylor, 2011. "Time-varying price discovery in fragmented markets," Applied Financial Economics, Taylor & Francis Journals, vol. 21(10), pages 717-734.
    25. Connolly, Robert A. & Stivers, Chris & Sun, Licheng, 2007. "Commonality in the time-variation of stock-stock and stock-bond return comovements," Journal of Financial Markets, Elsevier, vol. 10(2), pages 192-218, May.
    26. Stefano Dellavigna & Joshua M. Pollet, 2009. "Investor Inattention and Friday Earnings Announcements," Journal of Finance, American Finance Association, vol. 64(2), pages 709-749, April.
    27. Goyenko, Ruslan Y. & Ukhov, Andrey D., 2009. "Stock and Bond Market Liquidity: A Long-Run Empirical Analysis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 44(1), pages 189-212, February.
    28. Wang, Jianxin & Yang, Minxian, 2011. "Housewives of Tokyo versus the gnomes of Zurich: Measuring price discovery in sequential markets," Journal of Financial Markets, Elsevier, vol. 14(1), pages 82-108, February.
    29. Paolo Pasquariello & Clara Vega, 2007. "Informed and Strategic Order Flow in the Bond Markets," The Review of Financial Studies, Society for Financial Studies, vol. 20(6), pages 1975-2019, November.
    30. Bernile, Gennaro & Hu, Jianfeng & Tang, Yuehua, 2016. "Can information be locked up? Informed trading ahead of macro-news announcements," Journal of Financial Economics, Elsevier, vol. 121(3), pages 496-520.
    31. Boehmer, Beatrice & Boehmer, Ekkehart, 2003. "Trading your neighbor's ETFs: Competition or fragmentation?," Journal of Banking & Finance, Elsevier, vol. 27(9), pages 1667-1703, September.
    32. Gau, Yin-Feng & Wu, Zhen-Xing, 2017. "Macroeconomic announcements and price discovery in the foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 79(C), pages 232-254.
    33. Brock, William A. & Kleidon, Allan W., 1992. "Periodic market closure and trading volume : A model of intraday bids and asks," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 451-489.
    34. Heiko Jacobs & Martin Weber, 2012. "The Trading Volume Impact of Local Bias: Evidence from a Natural Experiment," Review of Finance, European Finance Association, vol. 16(4), pages 867-901.
    35. Lieven Baele, 2010. "The Determinants of Stock and Bond Return Comovements," The Review of Financial Studies, Society for Financial Studies, vol. 23(6), pages 2374-2428, June.
    36. Owain Ap Gwilym & Ian Mcmanus & Stephen Thomas, 2005. "Fractional versus decimal pricing: Evidence from the UK Long Gilt futures market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 25(5), pages 419-442, May.
    37. Hong, Harrison & Yu, Jialin, 2009. "Gone fishin': Seasonality in trading activity and asset prices," Journal of Financial Markets, Elsevier, vol. 12(4), pages 672-702, November.
    38. Michael J. Barclay, 2003. "Price Discovery and Trading After Hours," The Review of Financial Studies, Society for Financial Studies, vol. 16(4), pages 1041-1073.
    39. Jonathan Brogaard & Terrence Hendershott & Ryan Riordan, 2014. "High-Frequency Trading and Price Discovery," The Review of Financial Studies, Society for Financial Studies, vol. 27(8), pages 2267-2306.
    40. Li, Hongyi & Maddala, G. S., 1997. "Bootstrapping cointegrating regressions," Journal of Econometrics, Elsevier, vol. 80(2), pages 297-318, October.
    41. Hasbrouck, Joel, 1995. "One Security, Many Markets: Determining the Contributions to Price Discovery," Journal of Finance, American Finance Association, vol. 50(4), pages 1175-1199, September.
    42. Underwood, Shane, 2009. "The cross-market information content of stock and bond order flow," Journal of Financial Markets, Elsevier, vol. 12(2), pages 268-289, May.
    43. repec:bla:jfinan:v:59:y:2004:i:6:p:2623-2654 is not listed on IDEAS
    44. Michael J. Fleming, 1997. "The round-the-clock market for U.S. Treasury securities," Economic Policy Review, Federal Reserve Bank of New York, vol. 3(Jul), pages 9-32.
    45. Jiang, George J. & Lo, Ingrid, 2014. "Private information flow and price discovery in the U.S. treasury market," Journal of Banking & Finance, Elsevier, vol. 47(C), pages 118-133.
    46. Chakrabarty, Bidisha & Pascual, Roberto & Shkilko, Andriy, 2015. "Evaluating trade classification algorithms: Bulk volume classification versus the tick rule and the Lee-Ready algorithm," Journal of Financial Markets, Elsevier, vol. 25(C), pages 52-79.
    47. David Easley & Marcos M. López de Prado & Maureen O'Hara, 2012. "Flow Toxicity and Liquidity in a High-frequency World," The Review of Financial Studies, Society for Financial Studies, vol. 25(5), pages 1457-1493.
    48. Gerety, Mason S & Mulherin, J Harold, 1992. "Trading Halts and Market Activity: An Analysis of Volume at the Open and the Close," Journal of Finance, American Finance Association, vol. 47(5), pages 1765-1784, December.
    49. Baillie, Richard T. & Geoffrey Booth, G. & Tse, Yiuman & Zabotina, Tatyana, 2002. "Price discovery and common factor models," Journal of Financial Markets, Elsevier, vol. 5(3), pages 309-321, July.
    50. Roberto Rigobon, 2003. "Identification Through Heteroskedasticity," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 777-792, November.
    51. Yang, Jian & Zhou, Yinggang & Wang, Zijun, 2009. "The stock-bond correlation and macroeconomic conditions: One and a half centuries of evidence," Journal of Banking & Finance, Elsevier, vol. 33(4), pages 670-680, April.
    52. Tarun Chordia, 2005. "An Empirical Analysis of Stock and Bond Market Liquidity," The Review of Financial Studies, Society for Financial Studies, vol. 18(1), pages 85-129.
    53. Robert I. Webb & David G. Smith, 1994. "The effect of market opening and closing on the volatility of eurodollar futures prices," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 14(1), pages 51-78, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fei Su, 2018. "Essays on Price Discovery and Volatility Dynamics in the Foreign Exchange Market," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 2-2018, January-A.
    2. repec:uts:finphd:39 is not listed on IDEAS
    3. repec:uts:finphd:38 is not listed on IDEAS
    4. Ibikunle, Gbenga, 2018. "Trading places: Price leadership and the competition for order flow," Journal of Empirical Finance, Elsevier, vol. 49(C), pages 178-200.
    5. Ran Xiao, 2019. "Essays on Price Discovery and Volatility Dynamics in Emerging Market Currencies," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 5-2019, January-A.
    6. Gau, Yin-Feng & Wu, Zhen-Xing, 2017. "Macroeconomic announcements and price discovery in the foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 79(C), pages 232-254.
    7. 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).
    8. Ibikunle, Gbenga & Aquilina, Matteo & Diaz-Rainey, Ivan & Sun, Yuxin, 2021. "City goes dark: Dark trading and adverse selection in aggregate markets," Journal of Empirical Finance, Elsevier, vol. 64(C), pages 1-22.
    9. Damien Wallace & Petko S. Kalev & Guanhua Lian, 2019. "The evolution of price discovery in us equity and derivatives markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(9), pages 1122-1136, September.
    10. Chan, Kalok & Chockalingam, Mark & Lai, Kent W. L., 2000. "Overnight information and intraday trading behavior: evidence from NYSE cross-listed stocks and their local market information," Journal of Multinational Financial Management, Elsevier, vol. 10(3-4), pages 495-509, December.
    11. Wu, Zhen-Xing & Gau, Yin-Feng & Chen, Yu-Lun, 2023. "Price discovery and triangular arbitrage in currency markets," Journal of International Money and Finance, Elsevier, vol. 137(C).
    12. Su, Fei & Wang, Xinyi & Yuan, Yulin, 2022. "The intraday dynamics and intraday price discovery of bitcoin," Research in International Business and Finance, Elsevier, vol. 60(C).
    13. Su, Fei & Zhang, Jingjing, 2018. "Global price discovery in the Australian dollar market and its determinants," Pacific-Basin Finance Journal, Elsevier, vol. 48(C), pages 35-55.
    14. Frijns, Bart & Indriawan, Ivan & Tourani-Rad, Alireza, 2015. "Macroeconomic news announcements and price discovery: Evidence from Canadian–U.S. cross-listed firms," Journal of Empirical Finance, Elsevier, vol. 32(C), pages 35-48.
    15. Xu, Liao & Xu, Lu & Zhao, Jing & Zhao, Yang, 2020. "Information-based trading and information propagation: Evidence from the exchange traded fund market," International Review of Financial Analysis, Elsevier, vol. 70(C).
    16. Collings, David & Corbet, Shaen & Hou, Yang (Greg) & Hu, Yang & Larkin, Charles & Oxley, Les, 2022. "The effects of negative reputational contagion on international airlines: The case of the Boeing 737-MAX disasters," International Review of Financial Analysis, Elsevier, vol. 80(C).
    17. Li, Mengling & Zheng, Huanhuan & Tai Leung Chong, Terence & Zhang, Yang, 2016. "The stock–bond comovements and cross-market trading," Journal of Economic Dynamics and Control, Elsevier, vol. 73(C), pages 417-438.
    18. Kalimipalli, Madhu & Nayak, Subhankar & Perez, M. Fabricio, 2013. "Dynamic effects of idiosyncratic volatility and liquidity on corporate bond spreads," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2969-2990.
    19. 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).
    20. Hou, Yang & Li, Steven, 2017. "Time-Varying Price Discovery and Autoregressive Loading Factors: Evidence from S&P 500 Cash and E-Mini Futures Markets," MPRA Paper 81999, University Library of Munich, Germany.
    21. Indriawan, Ivan & Jiao, Feng & Tse, Yiuman, 2021. "The FOMC announcement returns on long-term US and German bond futures," Journal of Banking & Finance, Elsevier, vol. 123(C).
    22. Alexander, Carol & Heck, Daniel F., 2020. "Price discovery in Bitcoin: The impact of unregulated markets," Journal of Financial Stability, Elsevier, vol. 50(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:jfutmk:v:39:y:2019:i:7:p:779-802. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.interscience.wiley.com/jpages/0270-7314/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.