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Asymmetric information, price discovery and macroeconomic announcements in FX market: do top trading banks know more?

  • Kate Phylaktis

    (Cass Business School, UK)

  • Long Chen

    (Cass Business School, UK)

This study investigates information asymmetry in the foreign exchange market by testing the hypothesis that top trading banks possess superior information on the macroeconomy because they process greater order flow, which, according to the micro-structure literature, helps them aggregate the dispersed information and feel the general movements of the economy. Examining the information share of the banks in the Reuters EFX system using indicative GBP-$US data over 5 years, we find that the top 10 banks, out of 100 quoting banks in the market, have a monthly average share of over 70% of total market information, and around 80% during some US macroannouncements. These results suggest the possibility of private information over public news in the foreign exchange market. Copyright © 2009 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/ijfe.391
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Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 15 (2010)
Issue (Month): 3 ()
Pages: 228-246

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Handle: RePEc:ijf:ijfiec:v:15:y:2010:i:3:p:228-246
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