Trader Reputation Dictates Market Behavior, Forecasting Future Returns and Volatility
Trading in the Treasury bond market can reveal information about the traders themselves, creating reputation over time. By analyzing this reputation, researchers found that different dealers react differently to each other's reputation, affecting trading volume and volatility. Certain dealers, known as "marginal traders," have the highest impact on the market. These findings have important implications for predicting future returns, volatility, and overall trading volume in the market.