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Price Formation and Liquidity in the U.S. Treasury Market: The Response to Public Information

Michael J. Fleming and Eli M. Remolona
The Journal of Finance
Vol. 54, No. 5 (Oct., 1999), pp. 1901-1915
Published by: Wiley for the American Finance Association
Stable URL: http://www.jstor.org/stable/222509
Page Count: 15
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Price Formation and Liquidity in the U.S. Treasury Market: The Response to Public Information
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Abstract

The arrival of public information in the U.S. Treasury market sets off a two-stage adjustment process for prices, trading volume, and bid-ask spreads. In a brief first stage, the release of a major macroeconomic announcement induces a sharp and nearly instantaneous price change with a reduction in trading volume, demonstrating that price reactions to public information do not require trading. The spread widens dramatically at announcement, evidently driven by inventory control concerns. In a prolonged second stage, trading volume surges, price volatility persists, and spreads remain moderately wide as investors trade to reconcile residual differences in their private views.

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