Global information distribution in the gold OTC markets

This paper aims to estimate the global information distribution in the OTC gold market. Using the two-scale realized variance as a proxy for information flow, we estimate the information shares of Asia, Europe, London/New York and the United States, with London/New York covering the two-hour overlapping trading in London afternoon and New York morning. We find that over the sample period of 1996 to 2012, the average daily information shares are 17%, 31%, 22%, and 30% for Asia, Europe, London/New York and the U.S., respectively. On a per-hour basis, the information share of London/New York is over two and half times of those of the rest of Europe and the U.S., and over five times of the information share of Asia. Despite doubling its share of OTC trading, Asia's information share actually declined from about 20% in the late 1990s to around 15% in 2009-2012, with the opposite trend for the London/New York market. Private information flow, measured by the volatility impact of unexpected order flows, has a flatter distribution across Asia, Europe, and the U.S., possibly due to the presence of the same large gold dealers in different markets. The declining information share of Asia and the concentration of information to the two-hour London/New York trading raise concerns for regional market development and global market stability.