Belief Dispersion and Order Submission Strategies in the Foreign Exchange Market
AbstractThis paper empirically examines how dispersions across investors beliefs influence traders order submission decisions in the foreign exchange market. Previous research has found that dispersion in traders beliefs regarding future macroeconomic announcements has a significant impact on both price dynamics and trading volume before the announcements in the foreign exchange and other financial markets. However, little is known about how this dispersion impacts traders choice in submitting different types of orders and thus to supply and demand liquidity either before or after such announcements. Since the types of orders submitted by traders at these times are the building blocks of the observed price and trading dynamics, it is important to understand how differences in investors' information sets before and after important macroeconomic announcements affect their order submission decisions. We find that (i) belief dispersion affects the size and aggressiveness of orders both before and after macroeconomic announcements, (ii) the magnitude of the impact of factors known to affect order choice depends on the level of belief dispersion, and (iii) the influence of information shocks (the revelation of unexpected information) on order choices depends on the level of belief dispersion.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Bank of Canada in its series Working Papers with number 11-8.
Length: 41 pages
Date of creation: 2011
Date of revision:
Contact details of provider:
Postal: 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada
Phone: 613 782-8845
Fax: 613 782-8874
Web page: http://www.bank-banque-canada.ca/
Exchange rates; Market structure and pricing;
Find related papers by JEL classification:
- D4 - Microeconomics - - Market Structure and Pricing
- G1 - Financial Economics - - General Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-03-12 (All new papers)
- NEP-CBA-2011-03-12 (Central Banking)
- NEP-MON-2011-03-12 (Monetary Economics)
- NEP-MST-2011-03-12 (Market Microstructure)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Andersen, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Vega, Clara, 2002.
"Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange,"
02-16, Duke University, Department of Economics.
- Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2003. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange," American Economic Review, American Economic Association, vol. 93(1), pages 38-62, March.
- Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2002. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange," NBER Working Papers 8959, National Bureau of Economic Research, Inc.
- Anderson, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Vega, Clara, 2002. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange," Working Papers 02-1, University of Pennsylvania, Wharton School, Weiss Center.
- Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2002. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange?," Center for Financial Institutions Working Papers 02-23, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Paolo Pasquariello & Clara Vega, 2007.
"Informed and Strategic Order Flow in the Bond Markets,"
Review of Financial Studies,
Society for Financial Studies, vol. 20(6), pages 1975-2019, November.
- Paolo Pasquariello & Clara Vega, 2006. "Informed and strategic order flow in the bond markets," International Finance Discussion Papers 874, Board of Governors of the Federal Reserve System (U.S.).
- Wei Xiong & Hongjun Yan & Review Financial, 2007.
"Heterogeneous Expectations and Bond Markets,"
Yale School of Management Working Papers
amz2614, Yale School of Management, revised 01 Jun 2009.
- Madhavan, Ananth, 2000. "Market microstructure: A survey," Journal of Financial Markets, Elsevier, vol. 3(3), pages 205-258, August.
- Hamao, Y. & Hasbrouck, J., 1992.
"Securities Trading in the Absence of Dealers: Trade and Quotes on the Tokyo Stock Exchange,"
92-35, Columbia - Graduate School of Business.
- Hamao, Yasushi & Hasbrouck, Joel, 1995. "Securities Trading in the Absence of Dealers: Trades and Quotes on the Tokyo Stock Exchange," Review of Financial Studies, Society for Financial Studies, vol. 8(3), pages 849-78.
- Geir H. Bjønnes & Carol L. Osler & Dagfinn Rime, 2009. "Asymmetric information in the interbank foreign exchange market," Working Paper 2008/25, Norges Bank.
- Jongen, Ron & Verschoor, Willem F.C. & Wolff, Christian C.P., 2008.
"Foreign exchange rate expectations: survey and synthesis,"
Open Access publications from Maastricht University
urn:nbn:nl:ui:27-13932, Maastricht University.
- Ron Jongen & Willem F.C. Verschoor & Christian C.P. Wolff, 2008. "Foreign Exchange Rate Expectations: Survey And Synthesis," Journal of Economic Surveys, Wiley Blackwell, vol. 22(1), pages 140-165, 02.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.