The Stylised Facts of Price Discovery in Government Securities Markets: A Comparative Study

This paper investigates the price discovery process in financial markets, with a focus on government securities markets, by comparing patterns in trading volume, price volatility, and bid-ask spread in the U.S., Japan, the U.K., Italy, and Canada. The main findings are as follows. 1) In government securities markets, trading volume, price volatility, and bid-ask spread show U-shaped intraday patterns and inverse U-shaped intraweek patterns. However, equities and forex markets show different intraday and/or intraweek patterns, indicating different price discovery processes are in play. 2) Public information such as statistical announcements, notification of open market operations, and releases of policy rate changes affects the price discovery process immediately, creating surges in intraday trading volume, price volatility, and bid-ask spread. The content of this public information, including a surprise element, is important. It seems that more unexpected the surprise, the larger the surges in trading volume and price volatility. 3) The speed of price discovery seems to be faster in futures markets than in cash markets in most of the cases, partly reflecting higher accessibility and faster order-processing in futures markets. In such cases, it may be concluded that futures markets are deeper and more liquid than cash markets, in the sense that they quickly reflect incoming information, thus the degree of information content is high.