DP13880 Clients' Connections: Measuring the Role of Private Information in Decentralised Markets
|Author(s):||Péter Kondor, Gabor Pinter|
|Publication Date:||July 2019|
|Keyword(s):||Client-Dealer Connections, Government Bond Market, private information|
|JEL(s):||G12, G14, G24|
|Programme Areas:||Financial Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=13880|
We propose a new measure of private information in decentralised markets -- connections -- defined as the number of dealers with whom a client trades in a time period. Using proprietary data for the UK government bond market, we show that clients have systematically better performance when having more connections, and this effect is stronger during macroeconomic announcements. Time-variation in market-wide connections also helps explain yield dynamics. Given our novel measure, we present two applications suggesting that (i) dealers pass on information, acquired from their informed clients, to their subsidiaries, and (ii) informed clients better predict the order-flow intermediated by their dealers.