Asymmetric Information Risk in FX Markets

Item Type Monograph (Working Paper)
Abstract This work studies the information content of trades in the world’s largest over-the-counter(OTC) market, the foreign exchange (FX) market. It analyses a novel, comprehensive order flow dataset, distinguishing amongst different groups of market participants and covering a large cross-section of currency pairs. We find compelling evidence of heterogeneous superior information across agents, time and currency pairs, consistent with the asymmetric information theory and OTC market fragmentation. A trading strategy based on the permanent price impact, capturing asymmetric information risk, generates high returns even after accounting for risk, transaction costs and other common risk factors documented in the FX literature.
Authors Ranaldo, Angelo & Somogyi, Fabricius
Language English
Keywords Asymmetric information, Currency portfolios, Order flow, OTC, Price discovery
Subjects finance
HSG Classification contribution to scientific community
HSG Profile Area SOF - System-wide Risk in the Financial System
Date 30 September 2018
Publisher SoF HSG
Series Name School of Finance Working Paper Series
Volume 2018
Number 20
Number of Pages 61
Official URL
Depositing User Christina Ihasz
Date Deposited 02 Oct 2018 07:32
Last Modified 20 Mar 2023 01:25


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Ranaldo, Angelo & Somogyi, Fabricius: Asymmetric Information Risk in FX Markets. School of Finance Working Paper Series, 2018, 20.

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