TY  - JOUR
AU  - Cao,H. Henry
AU  - Lyons,Richard K.
AU  - Evans,Martin D.D.
TI  - Inventory Information
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9893
PY  - 2003
Y2  - August 2003
UR  - http://www.nber.org/papers/w9893
L1  - http://www.nber.org/papers/w9893.pdf
N1  - Author contact info:
H. Henry Cao
Cheung Kong Graduate School of Business
E-Mail: hncao@ckgsb.edu.cn

Richard K. Lyons
460 Michigan Ave
Berkeley, CA 94707
Tel: 510-642-1059
Fax: 510-642-4700
E-Mail: lyons@haas.berkeley.edu

Martin Evans
Department of Economics
Georgetown University
Washington, DC  20057
Tel: 202-687-1570
E-Mail: evansm1@georgetown.edu
AB  - 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.
ER  -