Informed traders’ arrival in foreign exchange markets: Does geography matter?

Ramazan Gencay, Nikola Gradojevic, Richard Olsen () and Faruk Selcuk

Empirical Economics, 2015, vol. 49, issue 4, 1462 pages

Abstract: This article critically investigates the possibility that private information offering systematic profit opportunities exists in the spot foreign exchange market. Using a unique dataset with trader-specific limit and market order histories for more than 10,000 traders, we detect transaction behavior consistent with the informed trading hypothesis, where traders consistently make money. We then work within the theoretical framework of a high-frequency version of a structural microstructure trade model, which directly measures the market maker’s beliefs. Both the estimates of the trade model parameters and our model-free analysis of the data suggest that the time-varying pattern of the probability of informed trading is rooted in the strategic arrival of informed traders on a particular day-of-week, hour-of-day, or geographic location (market). Copyright Springer-Verlag Berlin Heidelberg 2015

Keywords: Foreign exchange markets; Volume; Informed trading; Noise trading (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s00181-015-0917-z

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