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Exchange rate response to macronews: Through the lens of microstructure

  • Savaser, Tanseli

This study investigates the microeffects of macronews using customer price-contingent orders (i.e. stop-loss and take-profit orders) data from a large foreign exchange dealing bank in the pound/dollar market. Results reveal that price-contingent order placement intensifies 3-5 h prior to the news events. I examine the link between this surge in order placement and the exchange-rate jump following the announcement. I find that price-contingent orders can enhance our ability to explain post-release exchange-rate returns by half. Furthermore, the estimated effect of orders is orthogonal to the news surprises. This implies that there may be a component of the news response that purely reflects institutional features such as order types and not necessarily the content of the public information itself.

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Article provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.

Volume (Year): 21 (2011)
Issue (Month): 1 (February)
Pages: 107-126

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Handle: RePEc:eee:intfin:v:21:y:2011:i:1:p:107-126
Contact details of provider: Web page: http://www.elsevier.com/locate/intfin

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