Abstract
This paper studies the effects of pre-trade transparency on the price discovery process by investigating the choice of trading venue and order type by informed dealers who can choose between an electronic limit order book (LOB) and the over-the-counter (OTC) market. A detailed data set from the hybrid Norwegian government bond market shows that informed dealers, defined as dealers whose order flows predict bond excess returns, prefer market orders in the LOB. The results further show that uninformed dealers tend to provide liquidity to informed dealers in the LOB. Informed dealers' preference for speed can reflect that limit orders are exposed to high waiting costs in markets with infrequent trading and that OTC trades are exposed to a costly leakage of information in markets dominated by a few central dealers.
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