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Informativeness of trade size in foreign exchange markets

Author

Listed:
  • Nikola Gradojevic

    (LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - ULCO - Université du Littoral Côte d'Opale - Université de Lille - CNRS - Centre National de la Recherche Scientifique)

  • Deniz Erdemlioglu

    (LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - ULCO - Université du Littoral Côte d'Opale - Université de Lille - CNRS - Centre National de la Recherche Scientifique)

  • Ramazan Gençay

Abstract

This article investigates a trading strategy that relies on private information in an electronic spot foreign exchange market. In a structural microstructure model extended for high-frequency data, our analysis links the informational content of trading activity to order size. We find that large currency orders are likely to be placed by informed traders during increased price volatility episodes. In addition, the data suggest that excess kurtosis in exchange rate returns (corresponding to large price-contingent trades) is significantly lower than that in small trades.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Nikola Gradojevic & Deniz Erdemlioglu & Ramazan Gençay, 2017. "Informativeness of trade size in foreign exchange markets," Post-Print hal-01745281, HAL.
    • Handle: RePEc:hal:journl:hal-01745281
    DOI: 10.1016/j.econlet.2016.11.010
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    Cited by:

    1. Cui, Zhenyu & Taylor, Stephen, 2020. "Arbitrage detection using max plus product iteration on foreign exchange rate graphs," Finance Research Letters, Elsevier, vol. 35(C).
    2. Tahara, Hiroki, 2020. "On the Applicability of the Black-Scholes Model to the Inverse Quantity of Price (Under Peer-Review)," OSF Preprints fgnca, Center for Open Science.
    3. Nihad Aliyev & Xue-Zhong He, 2017. "Ambiguous Market Making," Research Paper Series 383, Quantitative Finance Research Centre, University of Technology, Sydney.
    4. Nihad Aliyev, 2019. "Financial Markets with Multidimensional Uncertainty," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 2-2019, January-A.
    5. repec:osf:osfxxx:fgnca_v1 is not listed on IDEAS
    6. Sensoy, Ahmet & Serdengeçti, Süleyman, 2019. "Intraday volume-volatility nexus in the FX markets: Evidence from an emerging market," International Review of Financial Analysis, Elsevier, vol. 64(C), pages 1-12.
    7. Donald Lien & Pi-Hsia Hung, 2023. "Whose trades contribute more to price discovery? Evidence from the Taiwan stock exchange," Review of Quantitative Finance and Accounting, Springer, vol. 61(1), pages 213-263, July.

    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G0 - Financial Economics - - General
    • G1 - Financial Economics - - General Financial Markets

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