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Intraday patterns in FX returns and order flow

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  • Francis Breedon
  • Angelo Ranaldo

Abstract

Using 10 years of high-frequency foreign exchange data, we present evidence of time-of-day effects in foreign exchange returns through a significant tendency for currencies to depreciate during local trading hours. We confirm this pattern across a range of currencies and find that, in the case of EUR/USD, it can form a simple, profitable trading strategy. We also find that this pattern is present in order flow and suggest that both patterns relate to the tendency of market participants to be net purchasers of foreign exchange in their own trading hours. Data from alternative sources appear to corroborate that interpretation.

Suggested Citation

  • Francis Breedon & Angelo Ranaldo, 2011. "Intraday patterns in FX returns and order flow," Working Papers 2011-04, Swiss National Bank.
  • Handle: RePEc:snb:snbwpa:2011-04
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    References listed on IDEAS

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    Cited by:

    1. Breedon, Francis & Rime, Dagfinn & Vitale, Paolo, 2010. "A Transaction Data Study of the Forward Bias Puzzle," CEPR Discussion Papers 7791, C.E.P.R. Discussion Papers.
    2. Jonathan Batten & Brian Lucey & Frank McGroarty & Maurice Peat & Andrew Urquhart, 2017. "Stylized facts of intraday precious metals," PLOS ONE, Public Library of Science, vol. 12(4), pages 1-21, April.
    3. Wang, Jinghua & Ngene, Geoffrey M., 2020. "Does Bitcoin still own the dominant power? An intraday analysis," International Review of Financial Analysis, Elsevier, vol. 71(C).
    4. Eross, Andrea & McGroarty, Frank & Urquhart, Andrew & Wolfe, Simon, 2019. "The intraday dynamics of bitcoin," Research in International Business and Finance, Elsevier, vol. 49(C), pages 71-81.
    5. Ranaldo, Angelo, 2009. "Segmentation and time-of-day patterns in foreign exchange markets," Journal of Banking & Finance, Elsevier, vol. 33(12), pages 2199-2206, December.
    6. Francis Breedon & Dagfinn Rime & Paolo Vitale, 2016. "Carry Trades, Order Flow, and the Forward Bias Puzzle," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(6), pages 1113-1134, September.
    7. Khademalomoom, Siroos & Narayan, Paresh Kumar, 2019. "Intraday effects of the currency market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 58(C), pages 65-77.
    8. Nina Karnaukh & Angelo Ranaldo & Paul Söderlind, 2015. "Understanding FX Liquidity," Review of Financial Studies, Society for Financial Studies, vol. 28(11), pages 3073-3108.
    9. Melvin, Michael & Pan, Wenqiang & Wikstrom, Petra, 2020. "Retaining alpha: The effect of trade size and rebalancing frequency on FX strategy returns," Journal of Financial Markets, Elsevier, vol. 51(C).
    10. 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.
    11. Ranaldo, Angelo & Somogyi, Fabricius, 2021. "Asymmetric information risk in FX markets," Journal of Financial Economics, Elsevier, vol. 140(2), pages 391-411.
    12. Suleyman Serdengeçti & Ahmet Sensoy & Duc Khuong Nguyen, 2020. "Dynamics of Return and Liquidity (Co)Jumps in Emerging Foreign Exchange Markets," Working Papers 2020-006, Department of Research, Ipag Business School.
    13. Khademalomoom, Siroos & Narayan, Paresh Kumar, 2020. "Intraday-of-the-week effects: What do the exchange rate data tell us?," Emerging Markets Review, Elsevier, vol. 43(C).
    14. Leopoldo Catania & Mads Sandholdt, 2019. "Bitcoin at High Frequency," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 12(1), pages 1-20, February.
    15. Lee, Suzanne S. & Wang, Minho, 2020. "Tales of tails: Jumps in currency markets," Journal of Financial Markets, Elsevier, vol. 48(C).
    16. Angelo Ranaldo & Paolo Santucci de Magistris, 2018. "Trading Volume, Illiquidity and Commonalities in FX Markets," Working Papers on Finance 1823, University of St. Gallen, School of Finance, revised Oct 2019.
    17. Zhang, Hao, 2018. "Intraday patterns in foreign exchange returns and realized volatility," Finance Research Letters, Elsevier, vol. 27(C), pages 99-104.
    18. Boyarchenko, Nina & Larsen, Lars C. & Whelan, Paul, 2020. "The Overnight Drift," CEPR Discussion Papers 14462, C.E.P.R. Discussion Papers.
    19. Dan Gabriel Anghel, 2020. "What Can Machine Learning Tell Us About Intraday Price Patterns in a Frontier Stock Market?," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(5), pages 205-220, October.

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    More about this item

    Keywords

    foreign exchange; microstructure; order flow; liquidity;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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