Private information and its origins in an electronic foreign exchange market

Ramazan Gencay and Nikola Gradojevic

Economic Modelling, 2013, vol. 33, issue C, 86-93

Abstract: We study the risk of informed trading in an electronic foreign exchange market and test whether informed trading is driven by marketwide private information. Our framework is based on a structural microstructure trade model that measures the market makers' beliefs directly. Evidence of high concentration of informed trades is found to be inversely related to the overall 24-hour trading activity, i.e., early morning and late afternoon GMT rounds of trading involve the highest risk of informed trading. We structurally identify that the trades due to region-specific private information are dominant and explain between 5 and 25% of the variation in currency returns. In contrast, marketwide private information explains only about 1–5% of the variation in returns.

Keywords: Foreign exchange markets; Private information; Informed trading; Noise trading (search for similar items in EconPapers)
JEL-codes: F3 G0 G1 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999313001119
Full text for ScienceDirect subscribers only

Related works:
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:eee:ecmode:v:33:y:2013:i:c:p:86-93

DOI: 10.1016/j.econmod.2013.03.007

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().