Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/53910 
Year of Publication: 
2007
Series/Report no.: 
Bank of Canada Working Paper No. 2007-27
Publisher: 
Bank of Canada, Ottawa
Abstract: 
Differences in market structures may affect the manner in which fundamental information is incorporated into prices. High levels of quote and trade transparency plus substantial quoting obligations in European government securities markets ensure that prices are informationally efficient. The relationship between price changes, order flow, relative depth and spreads across European and Canadian short-term government bond markets is examined via a reduced-form vector autoregression model. In European markets, dealers are able to quickly absorb private information elsewhere in the market. Consequently, spreads and the relative depth on the bid and offer sides of the market are found to be only slightly informative. Similarly, order flow, which reflects inventory management practices in addition to private information, explains a smaller proportion of the variation in asset returns in European markets than in Canadian interdealer brokered markets where no quoting obligations exist.
Subjects: 
Market structure and pricing
Financial markets
Interest rates
JEL: 
G12
G14
G15
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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