Local information in foreign exchange markets
Abstract
This study shows that order flow in a foreign exchange market appears to have permanent price impact only if it comes from certain regions. These regions are - as predicted by the local information hypothesis - centers of political and financial decision making. It is revealing that orders from other regions only show a very short-lived but no permanent price impact. Local information is so important that it carries over from the usually considered market orders to aggressively priced limit orders too. The finding is robust to common news shocks, to the consideration of feedback trading and to further controls.Download Info
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Bibliographic Info
Article provided by Elsevier in its journal Journal of International Money and Finance.
Volume (Year): 27 (2008)
Issue (Month): 8 (December)
Pages: 1383-1406
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/30443
Related research
Keywords: Local information hypothesis Price impact Limit orders Informed traders;Other versions of this item:
- Menkhoff, Lukas & Schmeling, Maik, 2006. "Local Information in Foreign Exchange Markets," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Leibniz Universität Hannover dp-331, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
- F31 - International Economics - - International Finance - - - Foreign Exchange
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Lukas Menkhoff & Carol L. Osler & Maik Schmeling, 2010.
"Limit-Order Submission Strategies under Asymmetric Information,"
CESifo Working Paper Series
3054, CESifo Group Munich.
- Menkhoff, Lukas & Osler, Carol L. & Schmeling, Maik, 2010. "Limit-order submission strategies under asymmetric information," Journal of Banking & Finance, Elsevier, vol. 34(11), pages 2665-2677, November.
- Carol Osler & Alexander Mende & Lukas Menkhoff, 2010.
"Price Discovery in Currency Markets,"
Working Papers
03, Brandeis University, Department of Economics and International Businesss School.
- Osler, Carol L. & Mende, Alexander & Menkhoff, Lukas, 2011. "Price discovery in currency markets," Journal of International Money and Finance, Elsevier, vol. 30(8), pages 1696-1718.
- Osler, Carol & Mende, Alexander & Menkhoff, Lukas, 2006. "Price Discovery in Currency Markets," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Leibniz Universität Hannover dp-351, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
- Menkhoff, Lukas & Schmeling, Maik, 2010.
"Whose trades convey information? Evidence from a cross-section of traders,"
Journal of Financial Markets,
Elsevier, vol. 13(1), pages 101-128, February.
- Menkhoff, Lukas & Schmeling, Maik, 2007. "Whose trades convey information? Evidence from a cross-section of traders," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Leibniz Universität Hannover dp-357, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
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"Pessimistic Foreign Investors and Turmoil in Emerging Markets : The Case of Brazil in 2002,"
The Warwick Economics Research Paper Series (TWERPS)
926, University of Warwick, Department of Economics.
- Sandro C. Andrade & Emanuel Kohlscheen, 2010. "Pessimistic Foreign Investors and Turmoil in Emerging Markets: the case of Brazil in 2002," Working Papers Series 211, Central Bank of Brazil, Research Department.
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"Exchange Rate Management in Emerging Markets: Intervention via an Electronic Limit Order Book,"
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2656, CESifo Group Munich.
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"Trader see, trader do: How do (small) FX traders react to large counterparties' trades?,"
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