Foreign exchange order fl ow as a risk factor

Craig Burnside, Mario Cerrato and Zhekai Zhang

Working Papers from Business School - Economics, University of Glasgow

Abstract: This paper proposes a set of novel pricing factors for currency returns that are mo- tivated by microstructure models. In so doing, we bring two strands of the exchange rate literature, namely market-microstructure and risk-based models, closer together. Our novel factors use order fl ow data to provide direct measures of buying and selling pressure related to carry trading and momentum strategies. We find that they appear to be good proxies for currency crash risk. Additionally, we show that the association between our order-fl ow factors and currency returns differs according to the customer segment of the foreign exchange market. In particular, it appears that financial cus- tomers are risk takers in the market, while non-financial customers serve as liquidity providers.

Keywords: foreign; exchange; order fl ow; risk factor. (search for similar items in EconPapers)
JEL-codes: E44 E51 F3 F4 G21 (search for similar items in EconPapers)
Date: 2018-10
New Economics Papers: this item is included in nep-mac, nep-mst and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.gla.ac.uk/media/media_620139_en.pdf (application/pdf)

Related works:
Working Paper: Foreign Exchange Order Flow as a Risk Factor (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gla:glaewp:2018_04

Access Statistics for this paper

More papers in Working Papers from Business School - Economics, University of Glasgow Contact information at EDIRC.
Bibliographic data for series maintained by Business School Research Team ().