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

Kondor, Peter ORCID: 0000-0001-9797-9291 and Pinter, Gabor (2022) Clients’ connections: measuring the role of private information in decentralized markets. Journal of Finance, 77 (1). 505 - 544. ISSN 1540-6261

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Abstract

We propose a new measure of private information in decentralized 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 U.K. 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
Official URL:	https://onlinelibrary.wiley.com/journal/15406261
Additional Information:	© 2021 Bank of England
Divisions:	Finance
Subjects:	H Social Sciences > HG Finance
Date Deposited:	15 Jun 2021 10:03
Last Modified:	16 Nov 2024 04:12
URI:	http://eprints.lse.ac.uk/id/eprint/110861

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