Citation

Discussion Paper Details

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Title: Informed Trading in Government Bond Markets

Author(s): Dong Lou

Publication Date: July 2020

Keyword(s): asset managers, Government bonds, Informed trading and return predictability

Programme Area(s): Financial Economics

Abstract: Using comprehensive administrative data from the UK, we examine trading by different investor groups in government bond markets. Our sample covers virtually all secondary market trading in gilts and contains detailed information of each transaction, including the identities of both counterparties. We find that hedge funds' daily trading positively forecasts gilt returns in the following one to five days, which is then fully reversed in the following month. A part of this short-term return predictability is due to hedge funds' front-running other investors' future demand. Mutual fund trading also positively predicts gilt returns, but over a longer horizon of one to two months. This return pattern does not revert in the following year and is partly due to mutual funds' ability to forecast changes in short-term interest rates.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15028

Bibliographic Reference

Lou, D. 2020. 'Informed Trading in Government Bond Markets'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15028