Price discovery and liquidity recovery: Forex market reactions to macro announcements

Masahiro Yamada and Takatoshi Ito

Journal of International Money and Finance, 2022, vol. 120, issue C

Abstract: Using the EBS high-frequency data, the post-macro announcement forex market quality has been examined. Considering the rise of high-frequency traders, the market quality is conjectured to have improved. However, after the macro announcements, the speed of price discovery has changed little and the speed of liquidity recovery has slowed down over the years. Price discovery is shown to have improved when influences from declining trading volumes are controlled for. After the announcements, the number of high-frequency traders increases; liquidity improves, but price discovery slows down. The finding implies that those traders in the post-announcement market behave more like uninformed traders.

Keywords: Exchange rate; Price discovery; Liquidity; Market quality; Market microstructure; High-frequency data; High-frequency trading; Macro announcement (search for similar items in EconPapers)
JEL-codes: E44 F31 G14 G15 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:120:y:2022:i:c:s0261560621001534

DOI: 10.1016/j.jimonfin.2021.102502

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