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Order Flows, Fundamentals And Exchange Rates

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  • Kentaro Iwatsubo
  • Ian W. Marsh

Abstract

ABSTRACT We examine the links between end‐user order flows as seen by a major European commercial bank and macroeconomic fundamentals. We show that both exchange rate changes and flows are only weakly related to macroeconomic news announcements and hypothesize that ‘the cat is already out of the bag’ by the time the news is announced. Instead, order flows of financial and corporate customers reflect in real time the evolution of macroeconomies. The actions of the banks receiving the order flows in turn reveal the information to the market as a whole, which prices the exchange rate accordingly. By the time the news is announced, the exchange rate already contains the majority of the information. Copyright © 2014 John Wiley & Sons, Ltd.

Suggested Citation

  • Kentaro Iwatsubo & Ian W. Marsh, 2014. "Order Flows, Fundamentals And Exchange Rates," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 19(4), pages 251-266, October.
    • Handle: RePEc:wly:ijfiec:v:19:y:2014:i:4:p:251-266
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    Cited by:

    1. Anton Kuzmin, 2022. "Mathematical Exchange Rates Modeling: Equilibrium and Nonequilibrium Dynamics," Mathematics, MDPI, vol. 10(24), pages 1-19, December.
    2. Emanuel Kohlscheen, 2012. "Order Flow and the Real: Indirect Evidence of the Effectiveness of Sterilized Interventions," Working Papers Series 273, Central Bank of Brazil, Research Department.
    3. Lock, Eduardo & Winkelried, Diego, 2015. "Flujos de órdenes en el mercado cambiario y el valor intrínseco del Nuevo Sol," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 29, pages 33-54.

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    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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