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Macroeconomic news, order flows and exchange rates

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  • Love, Ryan
  • Payne, Richard

Abstract

Under rational expectations and efficient markets, the news contained in public information announcements is directly impounded into prices with there being no role for trades in this process of information assimilation. This paper directly tests this assertion using transaction level exchange rate data and a sample of scheduled macroeconomic announcements. The main result of the paper is that even information that is publicly and simultaneously released to all market participants is largely impounded into prices via the key micro-level price determinant — order flow. We quantify the role that order flow plays and find that between a half and two thirds of price relevant information is incorporated into prices via the trading process.

Suggested Citation

  • Love, Ryan & Payne, Richard, 2003. "Macroeconomic news, order flows and exchange rates," LSE Research Online Documents on Economics 24901, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:24901
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    File URL: http://eprints.lse.ac.uk/24901/
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    References listed on IDEAS

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    1. Martin D.D. Evans & Richard K. Lyons, 2017. "Order Flow and Exchange Rate Dynamics," World Scientific Book Chapters, in: Studies in Foreign Exchange Economics, chapter 6, pages 247-290, World Scientific Publishing Co. Pte. Ltd..
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    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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