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09/11 on the USD/EUR Foreign Exchange Market

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  • Mende, Alexander

Abstract

We study the relationship between foreign exchange trading activity and volatility on the USD/EUR foreign exchange market on the basis of a unique data set around the events of 09/11/2001. We find that volatility and bid-ask spreads are by far larger at that time, but the shock is not persistent. The positive correlation between volume and volatility does not break up, but intensifies strongly indicating the arrival of new information and increased price risk. We conclude that the USD/EUR foreign exchange market maintains its liquid structure and its efficient processing of exogenous shocks.

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Bibliographic Info

Paper provided by Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Hannover Economic Papers (HEP) with number dp-312.

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Length: 15 pages
Date of creation: Feb 2005
Date of revision:
Handle: RePEc:han:dpaper:dp-312

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Keywords: foreign exchange; market microstructure; liquidity; sudden events;

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Citations

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Cited by:
  1. Osler, Carol L. & Mende, Alexander & Menkhoff, Lukas, 2011. "Price discovery in currency markets," Journal of International Money and Finance, Elsevier, vol. 30(8), pages 1696-1718.
  2. Mende, Alexander & Menkhoff, Lukas, 2006. "Profits and speculation in intra-day foreign exchange trading," Journal of Financial Markets, Elsevier, vol. 9(3), pages 223-245, August.
  3. Michael R. King & Carol Osler & Dagfinn Rime, 2013. "The market microstructure approach to foreign exchange - Looking back and looking forward," Working Paper 2013/12, Norges Bank.
  4. J. W.B. Bos & M. Frömmel & M. Lamers, 2013. "FDI, Terrorism and the Availability Heuristic for U.S. Investors before and after 9/11," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 13/850, Ghent University, Faculty of Economics and Business Administration.
  5. Khemraj, Tarron & Pasha, Sukrishnalall, 2008. "Foreign exchange market bid-ask spread and market power in an underdeveloped economy," MPRA Paper 11422, University Library of Munich, Germany.

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