Customer flow, intermediaries, and the discovery of the equilibrium riskfree rate

  • Macro announcements change the equilibrium riskfree rate. We find that treasury prices reflect part of the impact instantaneously, but intermediaries rely on their customer order flow in the 15 minutes after the announcement to discover the full impact. We show that this customer flow informativeness is strongest at times when analyst forecasts of macro variables are highly dispersed. We study 30 year treasury futures to identify the customer flow. We further show that intermediaries appear to benefit from privately recognizing informed customer flow, as, in the cross-section, their own-account trade profitability correlates with access to customer orders, controlling for volatility, competition, and the announcement surprise. These results suggest that intermediaries learn about equilibrium riskfree rates through customer orders.

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Author:Albert J. Menkveld, Asani Sarkar, Michel van der Wel
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2008,47
Series (Serial Number):CFS working paper series (2008, 47)
Document Type:Working Paper
Year of Completion:2008
Year of first Publication:2008
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2009/01/29
Tag:Customer Flow; Intermediary; Macroeconomic Announcements; Riskfree Rate; Treasury Futures
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht