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Microstructure of the Yen/Dollar Foreign Exchange Market: Patterns of Intra-day Activity Revealed in the Electronic Broking System

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  • Takatoshi Ito
  • Yuko Hashimoto

Abstract

This paper establishes several intra-day patterns of the high-frequency exchange rate behavior, using the firm bid-ask quote, transaction of the EBS data set. First, the activity of quote and transactions is high in the beginning hours of the three major currency markets -- Tokyo, London, and New York and low during the Tokyo and London lunch hours and late afternoon in New York. Second, a new observation is obtained in that activity does not increase toward the end of business hours in the three major markets, even during the closing hours of New York on Friday. Third, an average bid-ask spread is narrow (wide), when quote and deal frequencies are high (low, respectively), except the beginning hour of Tokyo (GMT 0), when the bid-ask spread is wide despite high levels of activity.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10856.

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Date of creation: Oct 2004
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Handle: RePEc:nbr:nberwo:10856

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  1. Lyons, Richard K., 1995. "Tests of microstructural hypotheses in the foreign exchange market," Journal of Financial Economics, Elsevier, Elsevier, vol. 39(2-3), pages 321-351.
  2. Richard K. Lyons, 1996. "Foreign Exchange Volume: Sound and Fury Signifying Nothing?," NBER Chapters, in: The Microstructure of Foreign Exchange Markets, pages 183-208 National Bureau of Economic Research, Inc.
  3. Goodhart, Charles A. E. & O'Hara, Maureen, 1997. "High frequency data in financial markets: Issues and applications," Journal of Empirical Finance, Elsevier, Elsevier, vol. 4(2-3), pages 73-114, June.
  4. Takatoshi Ito & Richard K. Lyons & Michael T. Melvin, 1998. "Is There Private Information in the FX Market? The Tokyo Experiment," Journal of Finance, American Finance Association, American Finance Association, vol. 53(3), pages 1111-1130, 06.
  5. Jeffrey A. Frankel & Giampaolo Galli & Alberto Giovannini, 1996. "The Microstructure of Foreign Exchange Markets," NBER Books, National Bureau of Economic Research, Inc, number fran96-1.
  6. Torben G. Andersen & Tim Bollerslev, 1998. "Deutsche Mark-Dollar Volatility: Intraday Activity Patterns, Macroeconomic Announcements, and Longer Run Dependencies," Journal of Finance, American Finance Association, American Finance Association, vol. 53(1), pages 219-265, 02.
  7. David A. Hsieh & Allan W. Kleidon, 1996. "Bid-Ask Spreads in Foreign Exchange Markets: Implications for Models of Asymmetric Information," NBER Chapters, in: The Microstructure of Foreign Exchange Markets, pages 41-72 National Bureau of Economic Research, Inc.
  8. Richard K. Lyons, 2006. "The Microstructure Approach to Exchange Rates," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 026262205x, December.
  9. Baillie, Richard T & Bollerslev, Tim, 1991. "Intra-day and Inter-market Volatility in Foreign Exchange Rates," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(3), pages 565-85, May.
  10. Wood, Robert A & McInish, Thomas H & Ord, J Keith, 1985. " An Investigation of Transactions Data for NYSE Stocks," Journal of Finance, American Finance Association, American Finance Association, vol. 40(3), pages 723-39, July.
  11. Andersen, Torben G. & Bollerslev, Tim, 1997. "Intraday periodicity and volatility persistence in financial markets," Journal of Empirical Finance, Elsevier, Elsevier, vol. 4(2-3), pages 115-158, June.
  12. Goodhart, Charles A. E. & Payne, Richard G., 1996. "Microstructural dynamics in a foreign exchange electronic broking system," Journal of International Money and Finance, Elsevier, Elsevier, vol. 15(6), pages 829-852, December.
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Cited by:
  1. Menkhoff, Lukas & Schmeling, Maik, 2006. "Local Information in Foreign Exchange Markets," Hannover Economic Papers (HEP), Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät dp-331, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  2. Menkhoff, Lukas & Schmeling, Maik, 2010. "Trader see, trader do: How do (small) FX traders react to large counterparties' trades?," Journal of International Money and Finance, Elsevier, Elsevier, vol. 29(7), pages 1283-1302, November.
  3. Cai, Fang & Howorka, Edward & Wongswan, Jon, 2008. "Informational linkages across trading regions: Evidence from foreign exchange markets," Journal of International Money and Finance, Elsevier, Elsevier, vol. 27(8), pages 1215-1243, December.
  4. Menkhoff, Lukas & Osler, Carol L. & Schmeling, Maik, 2010. "Limit-order submission strategies under asymmetric information," Journal of Banking & Finance, Elsevier, Elsevier, vol. 34(11), pages 2665-2677, November.
  5. Takaaki Ohnishi & Hideki Takayasu & Takatoshi Ito & Yuko Hashimoto & Tsutomu Watanabe & Misako Takayasu, 2008. "Dynamics of quote and deal prices in the foreign exchange market," Journal of Economic Interaction and Coordination, Springer, Springer, vol. 3(1), pages 99-106, June.
  6. Menkhoff, Lukas & Schmeling, Maik, 2010. "Whose trades convey information? Evidence from a cross-section of traders," Journal of Financial Markets, Elsevier, Elsevier, vol. 13(1), pages 101-128, February.
  7. Ding, Liang, 2008. "Market structure and dealers' quoting behavior in the foreign exchange market," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 18(4), pages 313-325, October.
  8. Fang Cai & Edward Howorka & Jon Wongswan, 2006. "Transmission of volatility and trading activity in the global interdealer foreign exchange market: evidence from electronic broking services (EBS) data," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 863, Board of Governors of the Federal Reserve System (U.S.).
  9. Takatoshi Ito & Yuko Hashimoto, 2008. "Price Impacts of Deals and Predictability of the Exchange Rate Movements," NBER Chapters, in: International Financial Issues in the Pacific Rim: Global Imbalances, Financial Liberalization, and Exchange Rate Policy (NBER-EASE Volume 17), pages 177-217 National Bureau of Economic Research, Inc.
  10. Yuko Hashimoto & Takatoshi Ito, 2009. "Effects of Japanese Macroeconomic Announcements on the Dollar/Yen Exchange Rate: High-Resolution Picture," NBER Working Papers 15020, National Bureau of Economic Research, Inc.
  11. Ito, Takatoshi & Hashimoto, Yuko, 2006. "Intraday seasonality in activities of the foreign exchange markets: Evidence from the electronic broking system," Journal of the Japanese and International Economies, Elsevier, vol. 20(4), pages 637-664, December.
  12. Hashimoto, Yuko & Ito, Takatoshi, 2010. "Effects of Japanese macroeconomic statistic announcements on the dollar/yen exchange rate: High-resolution picture," Journal of the Japanese and International Economies, Elsevier, vol. 24(3), pages 334-354, September.
  13. Ligon, James A. & Liu, Hao-Chen, 2013. "The relation of trade size and price contribution in a traditional foreign exchange brokered market," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 21(1), pages 1024-1045.

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