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Order flow and exchange rate comovement

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  • Kleinbrod, Vincent M.
  • Li, Xiao-Ming

Abstract

This paper extends the literature on the linkage between order flows and exchange rates from the univariate to the multivariate framework. We examine how order flow differentials drive exchange rate comovements using data on five major exchange rates and at three different intraday frequencies. We also control for bid-ask spreads and the possible effects of order flow on returns and return volatility, and employ alternative order flow measures. Our results show that the effect of order flow on exchange rate comovements is significantly negative during the tranquil period but can become positive during the turbulet period. This negative effect lessens as the intraday frequency lowers. Generally over the entire sample period, exchange rate correlations are stronger during joint appreciations than joint depreciations.

Suggested Citation

  • Kleinbrod, Vincent M. & Li, Xiao-Ming, 2017. "Order flow and exchange rate comovement," Journal of International Money and Finance, Elsevier, vol. 77(C), pages 199-215.
  • Handle: RePEc:eee:jimfin:v:77:y:2017:i:c:p:199-215
    DOI: 10.1016/j.jimonfin.2017.07.022
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    References listed on IDEAS

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    More about this item

    Keywords

    Order flow; Exchange rate comovement; FX market;

    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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