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Liquidity provision in the overnight foreign exchange market

Author

Listed:
  • Geir Høidal Bjønnes

    (Norwegian School of Management)

  • Dagfinn Rime

    () (Norges Bank)

  • Haakon O. Aa. Solheim

    (Statistics Norway (SSB))

Abstract

We presents evidence that non-financial customers are the main liquidity providers in the overnight foreign exchange market using a unique daily data set covering almost all transactions in the SEK/EUR market over almost ten years. Two main findings support this: (i) The net position of non-financial customers is negatively correlated with the exchange rate, opposed to the positive correlation found for financial customers; (ii) Changes in net position of non-financial customers are forecasted by changes in net position of financial customers, indicating that non-financial customers take a passive role consistent with liquidity provision.

Suggested Citation

  • Geir Høidal Bjønnes & Dagfinn Rime & Haakon O. Aa. Solheim, 2004. "Liquidity provision in the overnight foreign exchange market," Working Paper 2004/13, Norges Bank.
  • Handle: RePEc:bno:worpap:2004_13 Note: Also published in Journal of International Money and Finance, 2005, issue 2 (March 2005), pp. 177-198.
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Microstructure; International finance; Liquidity;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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