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Liquidity provision in the overnight foreign exchange market

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  • Geir Høidal Bjønnes
  • Dagfinn Rime
  • Haakon O. Aa. Solheim

    ()
    (Statistics Norway)

Abstract

We presents evidence that non-financial customers are the main liquidity providers in the overnight foreign exchange market using a unique daily data set covering almost all transactions in the SEK/EUR market over almost ten years. Two main findings support this: (i) The net position of non-financial customers is negatively correlated with the exchange rate, opposed to the positive correlation found for financial customers; (ii) Changes in net position of non-financial customers are forecasted by changes in net position of financial customers, indicating that non-financial customers take a passive role consistent with liquidity provision.

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Bibliographic Info

Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 391.

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Date of creation: Sep 2004
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Handle: RePEc:ssb:dispap:391

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Keywords: Microstructure; International finance; Liquidity;

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