Central bank interventions and limit order behavior in the foreign exchange market

Masayuki Susai () and Yushi Yoshida
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Masayuki Susai: Nagasaki University

No 56, Discussion Papers from Kyushu Sangyo University, Faculty of Economics

Abstract: We investigate the intra-day effect of interventions in both the post- global crisis and pre-crisis periods by the Bank of Japan (BOJ) in foreign exchange markets using limit order data at intra-day high frequency. First, we find that the relationship between order flow and market return in dollar/yen exchange markets breaks down following unexpected and very high volumes of offer/sell orders by BOJ interventions. Then, a simple methodology of using large recursive residual is proposed to detect the exact timing of interventions. Second, the dataset allows measuring how long an individual limit order stays in the market. With the measured lifetime of limit orders, we find interventions, detected by the proposed methodology, significantly reduce the life-time of limit order in the market. By applying the same methodology on non-intervention days, we find no such evidence on the life-time of limit orders although large recursive residuals are also pervasive in non-intervention days.

Keywords: the Bank of Japan; Central bank interventions; Foreign exchange market; Life time of limit order; Order flow. (search for similar items in EconPapers)
JEL-codes: E58 F31 G12 G14 G15 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2012-07
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mon and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:kyu:dpaper:56

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