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Tokyo insiders and the informational efficiency of the yen/dollar exchange rate
Author(s) -
Covrig Vicentiu,
Melvin Michael
Publication year - 2005
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.263
Subject(s) - liberian dollar , economics , private information retrieval , monetary economics , exploit , order (exchange) , period (music) , exchange rate , us dollar , foreign exchange market , foreign exchange , test (biology) , finance , computer science , physics , computer security , acoustics , paleontology , biology
When there is a high concentration of informed yen/dollar traders active in Tokyo, theory suggests that there should be a faster adjustment of the yen/dollar exchange rate to the full‐information level. We exploit the data during a period believed to contain a high concentration of informed Japanese traders in order to test this hypothesis. Comparing the period of informed trader clustering to a similar period without the informed, we find that yen/dollar exchange rate quotes adjust to full‐information levels three times faster when the informed are active than when they are not. These results are consistent with a view of the foreign exchange market where private information is at times quite important. Copyright © 2005 John Wiley & Sons, Ltd.