The Cross-Market Information Content of Stock and Bond Order Flow

35 Pages Posted: 21 Mar 2005

Multiple version iconThere are 2 versions of this paper

Date Written: September 14, 2007

Abstract

In this paper I test the hypothesis that trading activity in the stock and bond markets contains important marketwide pricing information. Using a large sample of actively traded stocks and U.S. Treasury securities, I find that aggregate order imbalances play a strong role in explaining cross-market returns. I interpret this as evidence that aggregate order flow reveals information about the risk preferences, beliefs, and endowments of the investor population that is relevant for pricing securities in both markets. I also find evidence that cross-market hedging is an important source of linkages across the two markets, especially during periods of elevated equity volatility.

Keywords: Cross-market, Order flow, Market microstructure

JEL Classification: G14, G19

Suggested Citation

Underwood, Shane, The Cross-Market Information Content of Stock and Bond Order Flow (September 14, 2007). Available at SSRN: https://ssrn.com/abstract=686969 or http://dx.doi.org/10.2139/ssrn.686969

Shane Underwood (Contact Author)

Baylor University ( email )

P.O. Box 98004
Waco, TX 76798-8004
United States
254-710-4524 (Phone)