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Tokyo insiders and the informational efficiency of the yen|dollar exchange rate

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Author Info

  • Vicentiu Covrig

    (Department of Finance, California State University-Northridge, USA)

  • Michael Melvin

    (Department of Economics, Arizona State University, USA)

Abstract

When there is a high concentration of informed yen|dollar traders active in Tokyo, theory suggests that there should be a faster adjustment of the yen|dollar exchange rate to the full-information level. We exploit the data during a period believed to contain a high concentration of informed Japanese traders in order to test this hypothesis. Comparing the period of informed trader clustering to a similar period without the informed, we find that yen|dollar exchange rate quotes adjust to full-information levels three times faster when the informed are active than when they are not. These results are consistent with a view of the foreign exchange market where private information is at times quite important. Copyright © 2005 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/ijfe.263
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 10 (2005)
Issue (Month): 2 ()
Pages: 185-193

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Handle: RePEc:ijf:ijfiec:v:10:y:2005:i:2:p:185-193

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References

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  1. Takatoshi Ito & Richard K. Lyons & Michael T. Melvin, 1997. "Is There Private Information in the FX Market? The Tokyo Experiment," NBER Working Papers 5936, National Bureau of Economic Research, Inc.
  2. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
  3. Anat R. Admati, Paul Pfleiderer, 1988. "A Theory of Intraday Patterns: Volume and Price Variability," Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 3-40.
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Cited by:
  1. Takatoshi Ito & Yuko Hashimoto, 2006. "Intra-day Seasonality in Activities of the Foreign Exchange Markets: Evidence from the Electronic Broking System," CIRJE F-Series CIRJE-F-407, CIRJE, Faculty of Economics, University of Tokyo.
  2. Yuko Hashimoto & Takatoshi Ito, 2009. "Effects of Japanese Macroeconomic Announcements on the Dollar/Yen Exchange Rate: High-Resolution Picture," NBER Working Papers 15020, National Bureau of Economic Research, Inc.
  3. Geir H. Bjønnes & Carol L. Osler & Dagfinn Rime, 2009. "Asymmetric information in the interbank foreign exchange market," Working Paper 2008/25, Norges Bank.
  4. Yuko Hashimoto & Takatoshi Ito & Takaaki Ohnishi & Misako Takayasu & Hideki Takayasu & Tsutomu Watanabe, 2008. "Random Walk or A Run: Market Microstructure Analysis of the Foreign Exchange Rate Movements based on Conditional Probability," NBER Working Papers 14160, National Bureau of Economic Research, Inc.

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