Private information, yield volatility, and interaction between groups of investors: Case of Indonesia government bond market

Buddi Wibowo

Abstract


Relation of private information and yield volatility in relatively low liquid market such as Indonesia government bond market is one of recent important research topics in finance. Because private information accumulation mastery affects interaction pattern between dealers dan their customers, it is urgent to identify this price mechanism in government bond market, especially in low liquid market which small trading volume may create serious yield volatility. If there is a substantial disagreement on bond fair value because of distinct private information quality between each those groups of investors success to accumulate it, bond price will fluctuate wildly.  This paper study the dealer and customer order flow interaction to identify which side that have greater impact on yield volatility. The results show that from the two layers of order flow, disagreement  between dealers and customers are slightly in short-term and medium-term bond so their volatility are relatively low. But for long-term bond, disagreement is substantial and creates high yield volatility. Different trading platfor and strategy between dealer and customer play an important role in creating high yield fluctuations

JEL Classification: G12, G14, G11

DOI: https://doi.org/10.26905/jkdp.v23i2.2823



Keywords


Government bond; Order flow; Private information

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