Inventory Information / H. Henry Cao, Richard K. Lyons, Martin D.D. Evans.

Format:

Book

Author/Creator:

Cao, H. Henry.

Contributor:

National Bureau of Economic Research.

Lyons, Richard K.

Evans, Martin D.D.

Series:

Working Paper Series (National Bureau of Economic Research) no. w9893.

NBER working paper series no. w9893

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2003.

Summary:

In a market with symmetric information about fundamentals, can information-based trade still arise? Consider bond and FX markets, where private information about nominal cash flows is generally absent, but participants are convinced that superior information exists. We analyze a class of asymmetric information - inventory information - that is unrelated to fundamentals, but still forecasts future price (by forecasting future discount factors). Empirical work based on the analysis shows that inventory information in FX does indeed forecast discount factors, and does so over both short and long horizons. The immediate price impact of shocks to inventory information is large, roughly 50 percent of that from public information shocks (the latter being the whole story under symmetric information). Within about 30 minutes the transitory effect dies out, and prices reflect a permanent effect from inventory information that ranges between 15 and 30 percent of that from public information.

Notes:

Print version record

August 2003.