Premium
Information Flows in Foreign Exchange Markets: Dissecting Customer Currency Trades
Author(s) -
MENKHOFF LUKAS,
SARNO LUCIO,
SCHMELING MAIK,
SCHRIMPF ANDREAS
Publication year - 2016
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12378
Subject(s) - currency , order (exchange) , foreign exchange market , business , intermediation , foreign exchange , monetary economics , foreign exchange risk , financial economics , commerce , economics , finance
We study the information in order flows in the world's largest over‐the‐counter market, the foreign exchange (FX) market. The analysis draws on a data set covering a broad cross‐section of currencies and different customer segments of FX end‐users. The results suggest that order flows are highly informative about future exchange rates and provide significant economic value. We also find that different customer groups can share risk with each other effectively through the intermediation of a large dealer, and differ markedly in their predictive ability, trading styles, and risk exposure.