Profitability in an Electronic Foreign Exchange Market: Informed Trading or Differences in Valuation?
Fundamental spot exchange rate models preclude the existence of asymmetric information in foreign exchange markets. This article critically investigates the possibility that private information arises in the spot foreign exchange market. Using a rich dataset, we first empirically detect transaction behavior consistent with the informed trading hypothesis. We then work within the theoretical framework of a high-frequency version of a structural microstructure trade model, which directly measures the market makerâ€™s beliefs. We find that the time-varying pattern of the probability of informed trading is rooted in the strategic arrival of informed traders on a particular hour-of-day, day-of-week, or geographic location (market).
|Date of creation:||Jan 2009|
|Contact details of provider:|| Postal: Via Patara, 3, 47921 Rimini (RN)|
Web page: http://rcea.org
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:rim:rimwps:25_09. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marco Savioli)
If references are entirely missing, you can add them using this form.