Price Discovery in the Treasury-Bill When-Issued Market

Jeffrey M. Mercer; Mark E. Moore; Ryan J. Whitby; Drew B. Winters

doi:10.1111/j.1540-6288.2012.00354.x

Price Discovery in the Treasury-Bill When-Issued Market

Jeffrey M. Mercer, Mark E. Moore, Ryan J. Whitby, Drew B. Winters

Business Administration

Research output: Contribution to journal › Article › peer-review

3 Scopus citations

Abstract

When-issued (i.e., forward) trading in T-bills yet to be auctioned provides a unique environment for examining price discovery. Because T-bills are auctioned in a sealed-bid process, when-issued traders cannot observe the spot market price. Yet the forward price must ultimately converge on the auction outcome price. Our results indicate that traders in the when-issued market "discover" the ultimate auction price. Little evidence is found that standard order flow variables contribute to price discovery. Instead, the ability to observe a few trades with relatively small volume in the when-issued market is sufficient to discover the auction price resulting from the sealed-bid process.

Original language	English
Pages (from-to)	1-24
Number of pages	24
Journal	Financial Review
Volume	48
Issue number	1
DOIs	https://doi.org/10.1111/j.1540-6288.2012.00354.x
State	Published - Feb 2013

Keywords

G10
Price discovery
When-issued trading

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10.1111/j.1540-6288.2012.00354.x

Cite this

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author = "Mercer, {Jeffrey M.} and Moore, {Mark E.} and Whitby, {Ryan J.} and Winters, {Drew B.}",

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AB - When-issued (i.e., forward) trading in T-bills yet to be auctioned provides a unique environment for examining price discovery. Because T-bills are auctioned in a sealed-bid process, when-issued traders cannot observe the spot market price. Yet the forward price must ultimately converge on the auction outcome price. Our results indicate that traders in the when-issued market "discover" the ultimate auction price. Little evidence is found that standard order flow variables contribute to price discovery. Instead, the ability to observe a few trades with relatively small volume in the when-issued market is sufficient to discover the auction price resulting from the sealed-bid process.

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Price Discovery in the Treasury-Bill When-Issued Market

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Keywords

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