Resource title

Asymmetric information and trading strategies: testing dealers' behavior on the primary and secondary treasury-bond markets around auction days

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This study tests the behavior of informed dealers in Italian Treasury bonds around auction time, analyzing jointly their strategies on the primary and secondary markets. The analysis uses a unique dataset that covers both markets with detailed information broken down at a single dealer's level. In particular, the joint availability of information on dealers' behavior on both markets around auction time allows them to identify the informed dealers, to test their strategies, and to understand how they exploit their informational advantage. The authors show that the information generated at the auction is gradually released to the secondary market during the interval between the submission of the demand schedules and the announcement of the results of the auction by the Treasury. The release of information is due to the trading strategies of the informed dealers. They find that informed dealers hide their informational advantage before the auction through a reduction in the volume of trade on the secondary market. They then bid aggressively at the auction and exploit their information immediately after the deadline for the submission of the demand schedules to the Treasury, winding down their trading and going back to the normal level after the auction.

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en

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application/pdf

Resource resource URL

http://flora.insead.edu/fichiersti_wp/inseadwp2000/2000-41.pdf

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Copyright INSEAD. All rights reserved