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The Role and Magnitude of Order Flows in Seoul Foreign Market

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  • Chung, Chae-Shick

    (Sogang University)

Abstract

In this paper, we test the role of order flows in KRW/USD. We use transaction based high frequency data (electronic broker) happened in 2006. For robustness check, we extend our analysis by combining exchange rates (indicative quotes v.s. transaction rate), frequency (transaction based time v.s. 1 minute through 1 day), and order flows (sign v.s. signed volume). The results show that order flow is an important variable for explaining the KRW/USD regardless of frequency and of choice of quotes. Based on Hasbrouck's measure we find that 14-28% of permanent exchange rate variation is due to private information. The magnitude is smaller than that of international currency presenting, for example, in Payne (2003). The discrepancy arises both from currency choice and from too short data span in Payne (2003).

Suggested Citation

  • Chung, Chae-Shick, 2010. "The Role and Magnitude of Order Flows in Seoul Foreign Market," East Asian Economic Review, Korea Institute for International Economic Policy, vol. 14(1), pages 237-260, June.
    • Handle: RePEc:ris:eaerev:0112
    DOI: 10.11644/KIEP.JEAI.2010.14.1.214
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    Keywords

    Indicative Quote; KRW/USD; Market Microstructure; Order Flow;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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