"Does it take volume to move fx rates?" Evidence from quantile regressions

Katarzyna Bień-Barkowska

Dynamic Econometric Models, 2012, vol. 12, 35-52

Abstract: This study investigates the impact of trading volume on selected quantiles of the EUR/PLN return distribution. Empirical results obtained with the quantile regression approach confirm that an increase in the turnover is associated with a significant increase in the dispersion of the corresponding return distribution. We divided the trading volume into its expected (anticipated) and unexpected (unanticipated) component and found that the unexpected volume shocks have a significantly larger impact on the dispersion of the return distribution. We also observed that the volume-return relationship is nonlinear; the dependence is stronger with more extreme quantiles. Moreover, after accounting for a conditional volatility measure as a controlling explanatory factor for the quantile dynamics, the impact of the expected volume declines yet remains significant especially for the most extreme quantiles.

Keywords: volume-return relationship; market microstructure; FX trading; quantile regression (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:cpn:umkdem:v:12:y:2012:p:35-52

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