Tokyo insiders and the informational efficiency of the yen|dollar exchange rate

Vicentiu Covrig and Michael Melvin
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Vicentiu Covrig: Department of Finance, California State University-Northridge, USA, Postal: Department of Finance, California State University-Northridge, USA

International Journal of Finance & Economics, 2005, vol. 10, issue 2, 185-193

Abstract: When there is a high concentration of informed yen|dollar traders active in Tokyo, theory suggests that there should be a faster adjustment of the yen|dollar exchange rate to the full-information level. We exploit the data during a period believed to contain a high concentration of informed Japanese traders in order to test this hypothesis. Comparing the period of informed trader clustering to a similar period without the informed, we find that yen|dollar exchange rate quotes adjust to full-information levels three times faster when the informed are active than when they are not. These results are consistent with a view of the foreign exchange market where private information is at times quite important. Copyright © 2005 John Wiley & Sons, Ltd.

Date: 2005
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DOI: 10.1002/ijfe.263

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