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Clients’ connections: measuring the role of private information in decentralised markets

Kondor, Peter and Pinter, Gabor (2021) Clients’ connections: measuring the role of private information in decentralised markets. Journal of Finance. ISSN 1540-6261 (In Press)

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Abstract

We propose a new measure of private information in decentralised markets – connections – which exploits the time-variation in the number of dealers with whom a client trades in a time period. Using trade-level data for the UK government bond market, we show that clients perform better when having more connections as their trades predict future price movements. 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 affiliates, and (ii) informed clients better predict the orderflow intermediated by their dealers.

Item Type: Article
Divisions: Finance
Date Deposited: 15 Jun 2021 10:03
Last Modified: 10 Sep 2021 23:17
URI: http://eprints.lse.ac.uk/id/eprint/110861

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