Discussion paper

DP13880 Clients' Connections: Measuring the Role of Private Information in Decentralised Markets

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.

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Citation

Kondor, P and G Pinter (eds) (2019), “DP13880 Clients' Connections: Measuring the Role of Private Information in Decentralised Markets”, CEPR Press Discussion Paper No. 13880. https://cepr.org/publications/dp13880