Asymmetric Information Risk in FX Markets

Item Type Conference or Workshop Item (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 19 December 2019
Event Title Ninth workshop on exchange rates
Event Location European Central Bank, Frankfurt am Main
Event Dates 19.12.2019
Depositing User Christina Ihasz
Date Deposited 07 Jan 2020 10:23
Last Modified 20 Mar 2023 01:26


Full text not available from this repository.


Ranaldo, Angelo & Somogyi, Fabricius: Asymmetric Information Risk in FX Markets. 2019. - Ninth workshop on exchange rates. - European Central Bank, Frankfurt am Main.

Edit item Edit item