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Order flow and central bank intervention: An empirical analysis of recent Bank of Japan actions in the foreign exchange market

Listed author(s):
  • Marsh, Ian W.

This paper examines the behaviour of end-user order flows in the foreign exchange market around periods of intense and large-scale intervention activity by the Bank of Japan. First, we find very limited evidence that corporate customers are more than usually likely to be net sellers of yen on days when the Bank of Japan is intervening to sell yen. However, there is somewhat stronger evidence that financial customers are more likely to be net buyers of yen on the same days. Second, we find very clear evidence that intervention matters in a microstructure analysis. The strong contemporaneous correlation between order flows and exchange rate changes essentially disappears on days in which the Bank of Japan intervenes.

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File URL: http://www.sciencedirect.com/science/article/pii/S0261-5606(10)00112-9
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Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 30 (2011)
Issue (Month): 2 (March)
Pages: 377-392

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Handle: RePEc:eee:jimfin:v:30:y:2011:i:2:p:377-392
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

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  1. Eric Hillebrand & Gunther Schnabl & Yasemin Ulu, 2006. "Japanese Foreign Exchange Intervention and the Yen/Dollar Exchange Rate: A Simultaneous Equations Approach Using Realized Volatility," CESifo Working Paper Series 1766, CESifo Group Munich.
  2. Martin D.D. Evans & Richard K. Lyons, 2017. "Order Flow and Exchange Rate Dynamics," World Scientific Book Chapters,in: Studies in Foreign Exchange Economics, chapter 6, pages 247-290 World Scientific Publishing Co. Pte. Ltd..
  3. Beine, Michel & Lecourt, Christelle, 2004. "Reported and secret interventions in the foreign exchange markets," Finance Research Letters, Elsevier, vol. 1(4), pages 215-225, December.
  4. Fatum, Rasmus & Hutchison, Michael, 2006. "Effectiveness of official daily foreign exchange market intervention operations in Japan," Journal of International Money and Finance, Elsevier, vol. 25(2), pages 199-219, March.
  5. Humpage, Owen F., 2000. "The United States as an informed foreign-exchange speculator," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 10(3-4), pages 287-302, December.
  6. Humpage, Owen F, 1999. "U.S. Intervention: Assessing the Probability of Success," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(4), pages 731-747, November.
  7. Henriksson, Roy D & Merton, Robert C, 1981. "On Market Timing and Investment Performance. II. Statistical Procedures for Evaluating Forecasting Skills," The Journal of Business, University of Chicago Press, vol. 54(4), pages 513-533, October.
  8. Galati, Gabriele & Melick, William & Micu, Marian, 2005. "Foreign exchange market intervention and expectations: The yen/dollar exchange rate," Journal of International Money and Finance, Elsevier, vol. 24(6), pages 982-1011, October.
  9. Nagayasu, Jun, 2004. "The effectiveness of Japanese foreign exchange interventions during 1991-2001," Economics Letters, Elsevier, vol. 84(3), pages 377-381, September.
  10. Dominguez, Kathryn M. E., 2003. "The market microstructure of central bank intervention," Journal of International Economics, Elsevier, vol. 59(1), pages 25-45, January.
  11. Mark P. Taylor & Lucio Sarno, 2001. "Official Intervention in the Foreign Exchange Market: Is It Effective and, If So, How Does It Work?," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 839-868, September.
  12. Martin D. D. Evans & Richard K. Lyons, 2017. "Understanding Order Flow," World Scientific Book Chapters,in: Studies in Foreign Exchange Economics, chapter 13, pages 507-546 World Scientific Publishing Co. Pte. Ltd..
  13. Martin D. D. Evans & Richard K. Lyons, 2017. "How is Macro News Transmitted to Exchange Rates?," World Scientific Book Chapters,in: Studies in Foreign Exchange Economics, chapter 14, pages 547-596 World Scientific Publishing Co. Pte. Ltd..
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