The Microstructure of the UK gilt market

Working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 01 September 1995

Working Paper No. 38
By James Proudman

This paper examines the role of trades in price formation in the gilt market. The main findings are that there is apparently no information revealed by the trading process, and that even large trades do not permanently affect the price level. There is little indication that inventory adjustment plays a significant role either. Possibly as a result, spreads are decreasing in trade size. There is also bunching of trade volumes at times of day and week, casting doubt on models that explain such phenomena using adverse selection.

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