Options
Heterogeneous Information Content of Global FX Trading
Type
conference paper
Date Issued
2018-11-05
Author(s)
Abstract
This paper studies the information content of trades in the world's largest over-thecounter market, the foreign exchange (FX) market. The results are derived from a comprehensive order flow dataset distinguishing between different groups of market participants
and covering a broad cross-section of currency pairs. Our findings show that both the contemporary and permanent price impact are heterogeneous across agents, time, and currency pairs, supporting the asymmetric information theory. A trading strategy based on the permanent price impact capturing superior information generates high returns even after accounting for risk, transaction costs, and other common risk factors documented in the FX literature.
and covering a broad cross-section of currency pairs. Our findings show that both the contemporary and permanent price impact are heterogeneous across agents, time, and currency pairs, supporting the asymmetric information theory. A trading strategy based on the permanent price impact capturing superior information generates high returns even after accounting for risk, transaction costs, and other common risk factors documented in the FX literature.
Language
English
Keywords
Carry trade
Currency portfolios
Heterogeneity
Order flow
Price discovery
HSG Classification
contribution to scientific community
HSG Profile Area
SOF - System-wide Risk in the Financial System
Event Title
Annual Central Bank Conference on Microstructure of Financial Markets
Event Location
Hong Kong Institute for Monetary Research (HKIMR) of the Hong Kong Monetary Authority
Event Date
5-6 November 2018
Subject(s)
Division(s)
Eprints ID
255891