Price and liquidity discovery in european sovereign bonds and futures
- This work uses financial markets connected by arbitrage relations to investigate the dynamics of price and liquidity discovery, which refer to the cross-instrument forecasting power for prices and liquidity, respectively. Specifically, we seek to understand the linkage between the cheapest to deliver bond and closest futures pairs by using high-frequency data on European governments obligations and derivatives. We split the 2019-2021 sample into three subperiods to appreciate changes in the liquidity discovery induced by the COVID-19 pandemic. Within a cointegration model, we find that price discovery occurs on the futures market, and document strong empirical support for liquidity spillovers both from the futures to the cash market as well as from the cash to the futures market.
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| Author: | Ruggero Jappelli, Konrad Lucke, Loriana PelizzonORCiDGND |
|---|---|
| URN: | urn:nbn:de:hebis:30:3-646042 |
| URL: | https://ssrn.com/abstract=4107633 |
| DOI: | https://doi.org/10.2139/ssrn.4107633 |
| Parent Title (English): | SAFE working paper ; No. 350 |
| Series (Serial Number): | SAFE working paper (350) |
| Publisher: | SAFE |
| Place of publication: | Frankfurt am Main |
| Document Type: | Working Paper |
| Language: | English |
| Year of Completion: | 2022 |
| Year of first Publication: | 2022 |
| Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
| Release Date: | 2022/05/23 |
| Tag: | Fixed Income; Limits to Arbitrage; Market Liquidity |
| Issue: | May 13, 2022 |
| Page Number: | 39 |
| Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
| Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF) | |
| Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE) | |
| Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
| Sammlungen: | Universitätspublikationen |
| Licence (German): |  Deutsches Urheberrecht |
