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Asymmetric information, price discovery and macroeconomic announcements in FX market: do top trading banks know more?

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Author Info

  • Kate Phylaktis

    (Cass Business School, UK)

  • Long Chen

    (Cass Business School, UK)

Abstract

This study investigates information asymmetry in the foreign exchange market by testing the hypothesis that top trading banks possess superior information on the macroeconomy because they process greater order flow, which, according to the micro-structure literature, helps them aggregate the dispersed information and feel the general movements of the economy. Examining the information share of the banks in the Reuters EFX system using indicative GBP-$US data over 5 years, we find that the top 10 banks, out of 100 quoting banks in the market, have a monthly average share of over 70% of total market information, and around 80% during some US macroannouncements. These results suggest the possibility of private information over public news in the foreign exchange market. Copyright © 2009 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/ijfe.391
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Bibliographic Info

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

Volume (Year): 15 (2010)
Issue (Month): 3 ()
Pages: 228-246

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Handle: RePEc:ijf:ijfiec:v:15:y:2010:i:3:p:228-246

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Web page: http://www.interscience.wiley.com/jpages/1076-9307/

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References

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Citations

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Cited by:
  1. Carol Osler & Alexander Mende & Lukas Menkhoff, 2010. "Price Discovery in Currency Markets," Working Papers 03, Brandeis University, Department of Economics and International Businesss School.
  2. Lukas Mankhoff & Lucio Sarno & Maik Schmeling & Andreas Schrimpf, 2013. "Information Flows in Dark Markets: Dissecting Customer Currency Trades," BIS Working Papers 405, Bank for International Settlements.
  3. Moore, Michael J. & Payne, Richard, 2011. "On the sources of private information in FX markets," Journal of Banking & Finance, Elsevier, vol. 35(5), pages 1250-1262, May.
  4. Carol Osler & Xuhang Wang, 2012. "The Microstructure of Currency Markets," Working Papers 49, Brandeis University, Department of Economics and International Businesss School.

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