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Local Information in Foreign Exchange Markets

Listed author(s):
  • Menkhoff, Lukas
  • Schmeling, Maik

This study shows that order flow in a foreign exchange market only has permanent price impact if it comes from certain regions. These regions are - as predicted by the local information hypothesis - centers of political and financial decision making. It is revealing that orders from other regions only show a very short-lived but no permanent price impact. Local information is so important that it carries over from the usually considered market orders to aggressively-priced limit orders too. The finding is robust to various market conditions, common news shocks and consideration of feedback trading.

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File URL: http://diskussionspapiere.wiwi.uni-hannover.de/pdf_bib/dp-331.pdf
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Paper provided by Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Hannover Economic Papers (HEP) with number dp-331.

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Length: 31 pages
Date of creation: Apr 2006
Handle: RePEc:han:dpaper:dp-331
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Web page: http://www.wiwi.uni-hannover.de

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