IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

End-user order flow and exchange rate dynamics

  • Taylor, Mark P.
  • Schmidt, Markus
  • Reitz, Stefan

In this paper we provide evidence for Evans and Lyons' (2005b) model of an information aggregation process in FX markets using a German bank's end-user order flow from 2002 to 2003. Though customer order flow is unambiguously the vehicle incorporating non-public information into exchange rates over time, our empirical analysis does not support the widespread optimism in the market microstructure literature that customer order flow is the high-powered source of information easily exploitable for short-run speculation. Moreover, commercial customers' order flow produces negative coefficients in contemporaneous return regressions, stressing their role as liquidity providers.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://econstor.eu/bitstream/10419/19682/1/200705dkp.pdf
Download Restriction: no

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2007,05.

as
in new window

Length:
Date of creation: 2007
Date of revision:
Handle: RePEc:zbw:bubdp1:5559
Contact details of provider: Postal: Postfach 10 06 02, 60006 Frankfurt
Phone: 0 69 / 95 66 - 34 55
Fax: 0 69 / 95 66 30 77
Web page: http://www.bundesbank.de/
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Engel, Charles & West, Kenneth D., 2003. "Exchange rates and fundamentals," Working Paper Series 0248, European Central Bank.
  2. Martin D.D. Evans & Richard K. Lyons, 2005. "Meese-Rogoff Redux: Micro-Based Exchange Rate Forecasting," NBER Working Papers 11042, National Bureau of Economic Research, Inc.
  3. Cheung, Yin-Wong & Chinn, Menzie & Garcia Pascual, Antonio, 2003. "Empirical Exchange Rate Models of the Nineties: Are Any Fit to Survive?," Santa Cruz Center for International Economics, Working Paper Series qt5fc508pt, Center for International Economics, UC Santa Cruz.
  4. Ito, T. & Lyons, R. & Melvin, M.T., 1997. "Is There Private Information on the FX Market? The Tokyo Experiment," Papers 97-04, Economisch Institut voor het Midden en Kleinbedrijf-.
  5. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February.
  6. Martin D.D. Evans & Richard K. Lyons, 2004. "A New Micro Model of Exchange Rate Dynamics," NBER Working Papers 10379, National Bureau of Economic Research, Inc.
  7. Takatoshi Ito & Yuko Hashimoto, 2006. "Price Impacts of Deals and Predictability of the Exchange Rate Movements," NBER Working Papers 12682, National Bureau of Economic Research, Inc.
  8. Geir Høidal Bjønnes & Dagfinn Rime & Haakon O. Aa. Solheim, 2004. "Liquidity provision in the overnight foreign exchange market," Working Paper 2004/13, Norges Bank.
  9. Carol Osler & Alexander Mende & Lukas Menkhoff, 2010. "Price Discovery in Currency Markets," Working Papers 03, Brandeis University, Department of Economics and International Businesss School.
  10. Chris J. Leach & Ananth N. Madhavan, . "Intertemporal Price Discovery by Market Makers: Active versus Passive Learning," Rodney L. White Center for Financial Research Working Papers 15-90, Wharton School Rodney L. White Center for Financial Research.
  11. Martin D. D. Evans & Richard K. Lyons, 2005. "Understanding Order Flow," NBER Working Papers 11748, National Bureau of Economic Research, Inc.
  12. Lyons, Richard K., 1995. "Tests of microstructural hypotheses in the foreign exchange market," Journal of Financial Economics, Elsevier, vol. 39(2-3), pages 321-351.
  13. Martin D. D. Evans & Richard K. Lyons, 2007. "Exchange Rate Fundamentals and Order Flow," NBER Working Papers 13151, National Bureau of Economic Research, Inc.
  14. Richard C. Green & Burton Hollifield & Norman Schurhoff, . "Financial Intermediation and the Costs of Trading in an Opaque Market," GSIA Working Papers 2004-11, Carnegie Mellon University, Tepper School of Business.
  15. Madhavan, A. & Smidt, S., 1991. "A Baysian Model of Intraday Specialist Pricing," Weiss Center Working Papers 2-91, Wharton School - Weiss Center for International Financial Research.
  16. Martin D. D. Evans & Richard K. Lyons, 2002. "Order Flow and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 110(1), pages 170-180, February.
  17. Geir Hoidal Bjonnes & Dagfinn Rime, 2003. "Dealer Behavior and Trading Systems in Foreign Exchange Markets," Working Paper 2003/10, Norges Bank.
  18. Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
  19. Martin D. D. Evans & Richard K. Lyons, 2003. "Are Different-Currency Assets Imperfect Substitutes?," CESifo Working Paper Series 978, CESifo Group Munich.
  20. Charles Engel & Kenneth D. West, 2004. "Accounting for Exchange Rate Variability in Present-Value Models When the Discount Factor is Near One," NBER Working Papers 10267, National Bureau of Economic Research, Inc.
  21. William P. Killeen & Richard K. Lyons & Michael J. Moore, 2001. "Fixed versus Flexible: Lessons from EMS Order Flow," NBER Working Papers 8491, National Bureau of Economic Research, Inc.
  22. Carol L. Osler, 2003. "Currency Orders and Exchange Rate Dynamics: An Explanation for the Predictive Success of Technical Analysis," Journal of Finance, American Finance Association, vol. 58(5), pages 1791-1820, October.
  23. Michael J. Sager & Mark P. Taylor, 2006. "Under the microscope: the structure of the foreign exchange market," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 11(1), pages 81-95.
  24. Mark P. Taylor, 1995. "The Economics of Exchange Rates," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 13-47, March.
  25. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  26. Payne, Richard, 2003. "Informed trade in spot foreign exchange markets: an empirical investigation," Journal of International Economics, Elsevier, vol. 61(2), pages 307-329, December.
  27. Kenneth A. Froot & Tarun Ramadorai, 2005. "Currency Returns, Intrinsic Value, and Institutional-Investor Flows," Journal of Finance, American Finance Association, vol. 60(3), pages 1535-1566, 06.
  28. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
  29. Bjonnes,H. & Rime,D., 2000. "Customer trading and information in foreign exchange markets," Memorandum 30/2000, Oslo University, Department of Economics.
  30. Huang, Roger D & Stoll, Hans R, 1997. "The Components of the Bid-Ask Spread: A General Approach," Review of Financial Studies, Society for Financial Studies, vol. 10(4), pages 995-1034.
  31. C. L. Osler, 2002. "Stop-loss orders and price cascades in currency markets," Staff Reports 150, Federal Reserve Bank of New York.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:zbw:bubdp1:5559. 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: (ZBW - German National Library of Economics)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.