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Price discovery and liquidity recovery: Forex market reactions to macro announcements

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  • Yamada, Masahiro
  • Ito, Takatoshi

Abstract

Using the EBS high-frequency data, the post-macro announcement forex market quality has been examined. Considering the rise of high-frequency traders, the market quality is conjectured to have improved. However, after the macro announcements, the speed of price discovery has changed little and the speed of liquidity recovery has slowed down over the years. Price discovery is shown to have improved when influences from declining trading volumes are controlled for. After the announcements, the number of high-frequency traders increases; liquidity improves, but price discovery slows down. The finding implies that those traders in the post-announcement market behave more like uninformed traders.

Suggested Citation

  • Yamada, Masahiro & Ito, Takatoshi, 2022. "Price discovery and liquidity recovery: Forex market reactions to macro announcements," Journal of International Money and Finance, Elsevier, vol. 120(C).
    • Handle: RePEc:eee:jimfin:v:120:y:2022:i:c:s0261560621001534
    DOI: 10.1016/j.jimonfin.2021.102502
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    More about this item

    Keywords

    Exchange rate; Price discovery; Liquidity; Market quality; Market microstructure; High-frequency data; High-frequency trading; Macro announcement;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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