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Trading with the Informed and against the Uninformed: Flows and Positioning in the Global Currency Market

Author

Listed:
  • Aldo Barrios
  • Rob Franolic
  • Davide Giovanardi
  • Michael Melvin

Abstract

FX trade settlement data from CLS provides the most comprehensive view of the opaque market of OTC currency trades. We use the flows of investment funds and non-financial corporates and develop trading signals where the former reflects speculative strategies, while the latter trade for liquidity needs. The implication is we trade in the direction of the funds flows and trade against large corporate flows, which should be followed by price reversals. Trading with informed flows yields positive risk-adjusted performance. Incorporating the liquidity trades signal improves risk-adjusted performance and greatly lowers the tail risk of the model.

Suggested Citation

  • Aldo Barrios & Rob Franolic & Davide Giovanardi & Michael Melvin, 2022. "Trading with the Informed and against the Uninformed: Flows and Positioning in the Global Currency Market," CESifo Working Paper Series 9921, CESifo.
    • Handle: RePEc:ces:ceswps:_9921
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    foreign exchange; currency flows; informed trading; currency investing;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

    NEP fields

    This paper has been announced in the following NEP Reports:

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