An Empirical Study Of Treasury Bond Price Discovery On Fixed Income Platform

Pricing is the central function of Treasury bond market,how it works depends on the effectiveness of Treasury Bond Price Discovery.How Treasury Bond price formates and why Treasury Bond market prices move is a central issue in theoretical studies of financial market microstructure.Much research has been devoted to exploring the relation between bond price movements and trading activity,where the latter is mostly represented by trading volume in domestic researches.While order imbalance is a vector,and can provide more information than the trading volume.Based on extensive literatures relating order imbalance and price discovery,we abstracted the key view of them as our ground,and use the new proxy of trading activity to study the question of price formation and discovery in Treasury Bond market on Fixed Income Platform.Firstly,this paper analyzes the characteristics of order imbalance,such as autocorrelation and the relationship between order imbalance and liquidity,the relationship between order imbalance and market changes.Secondly,this paper investigates the impacts of order imbalance on Treasury Bond returns,and analyzes the role of market maker on liquidity and price formation process.The results show that the order imbalance shock will cause inventory cost,which will lead market makers to adjust their quotes in order to control their inventory positions,and finally affects liquidity and price efficiency.Accordingly,it is necessary to further improve market maker system to enhance the price efficiency of Treasury Bond market.Thirdly,we redefine the order imbalance variable,and empirically investigates the relationship between information contained in order imbalance and price behavior and the information role of the order imbalance in treasury bond markets,respectively on all days and on no-news days.The results show that mid-short order imbalance is more informative than long order imbalance,revealing that the impact of order imbalance on the information processing of price discovery in treasury bond markets does exist,meanwhile,the efficiency of price discovery in centralized multiple-dealership markets should be further bettered.Finally,we provide some policy proposal.We do this research with the hope of contributing to literatures and empirical study on price discovery for bond market,and on the other hand,providing meaningful proposal for Fixed Income Platform to improve its efficiency.