Kenneth Kavajecz

Finance Department
University of Wisconsin- Madison
975 University Ave.
Madison, WI 53706

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NBER Working Papers and Publications

November 2010What Does Equity Sector Orderflow Tell Us about the Economy?
with Alessandro Beber, Michael W. Brandt: w16534
Investors rebalance their portfolios as their views about expected returns and risk change. We use empirical measures of portfolio rebalancing to back out investors' views, specifically their views about the state of the economy. We show that aggregate portfolio rebalancing across equity sectors is consistent with sector rotation, an investment strategy that exploits perceived differences in the relative performance of sectors at different stages of the business cycle. The empirical foot-print of sector rotation has predictive power for the evolution of the economy and future bond market returns, even after controlling for relative sector returns. Contrary to many theories of price formation, trading activity therefore contains information that is not entirely revealed by resulting relativ...

Published: Beber, Alessandro, Michael W. Brandt, and Kenneth A. Kavajecz, What Can Equity Order ow Tell Us about the Economy?, Review of Financial Studies, 24, 2011, 3688-3730.

July 2006Flight-to-Quality or Flight-to-Liquidity? Evidence From the Euro-Area Bond Market
with Alessandro Beber, Michael W. Brandt: w12376
Do bond investors demand credit quality or liquidity? The answer is both, but at different times and for different reasons. Using data on the Euro-area government bond market, which features a unique negative correlation between credit quality and liquidity across countries, we show that the bulk of sovereign yield spreads is explained by differences in credit quality, though liquidity plays a non-trivial role especially for low credit risk countries and during times of heightened market uncertainty. In contrast, the destination of large flows into the bond market is determined almost exclusively by liquidity. We conclude that credit quality matters for bond valuation but that, in times of market stress, investors chase liquidity, not credit quality.

Published: Alessandro Beber & Michael W. Brandt & Kenneth A. Kavajecz, 2009. "Flight-to-Quality or Flight-to-Liquidity? Evidence from the Euro-Area Bond Market," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 22(3), pages 925-957, March. citation courtesy of

March 2003Price Discovery in the U.S. Treasury Market: The Impact of Orderflow and Liquidity on the Yield Curve
with Michael W. Brandt: w9529
We examine the role of price discovery in the U.S. Treasury market through the empirical relationship between orderflow, liquidity, and the yield curve. We find that orderflow imbalances (excess buying or selling pressure) can account for as much as 26 percent of the day-to-day variation in yields on days without major macroeconomic announcements. The effect of orderflow on yields is permanent and strongest when liquidity is low. All of the evidence points toward an important role of price discovery on understanding the behavior of the yield curve.

Published: Brandt, Michael W. and Kenneth A. Kavajecz. "Price Discovery In The U.S. Treasury Market: The Impact Of Orderflow And Liquidity On The Yield Curve," Journal of Finance, 2004, v59(6,Dec), 2623-2654.

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