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Order Flows, News, and Exchange Rate Volatility

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Author Info
M. FRÖMMEL
A. MENDE
L. MENKHOFF

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Abstract

This paper examines the roles of order flow (reflecting private information) and news (reflecting public information) in explaining exchange rate volatility. Analyzing four months of a bank’s high frequency US dollar-euro trading, three different kinds of order flow are used in addition to seasonal patterns in explaining volatility. We find that only larger sized order flows from financial customers and banks – indicating informed trading – contribute to explaining volatility, whereas flows from commercial customers do not. The result is robust when we control for news and other measures of market activity. This strengthens the view that exchange rate volatility reflects information processing.

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File URL: http://www.FEB.UGent.be/nl/Ondz/wp/Papers/wp_07_474.pdf
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Publisher Info
Paper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 07/474.

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Length: 27 pages
Date of creation: Jun 2007
Date of revision:
Handle: RePEc:rug:rugwps:07/474

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Related research
Keywords: exchange rate; market microstructure; order flow; financial customer orders; volatility patterns;

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Find related papers by JEL classification:
F - International Economics
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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This page was last updated on 2009-11-30.

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