Measuring the information content of customer foreign exchange orders

Sviatoslav Rosov and Frederick Foster
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Sviatoslav Rosov: School of Slavonic and East European Studies, University College London, UK

Australian Journal of Management, 2014, vol. 39, issue 2, 247-264

Abstract: This paper investigates whether customer order flow conveys information about future foreign exchange (FX) prices. We use a unique data set from a leading Australian commercial bank that records every FX trade made by the bank in the spot Australian dollar/US dollar market between 2005 and 2010. We find little evidence in support of a cointegrating relation or a statistically significant correlation between customer order flow and FX returns. However, consistent with the liquidity provision role of non-financial customers in Evans and Lyons ((2002) Order flow and exchange rate dynamics. Journal of Political Economy 110: 170–180), we find a statistically significant negative correlation between order flow from the diversified economic sector and FX returns. A dynamic analysis suggests that order flow has little or no price impact on FX returns. These results suggest that the non-financial customer order flow of a commercial bank does not carry information about FX prices.

Keywords: Customer orders; foreign exchange; information flows (search for similar items in EconPapers)
JEL-codes: G23 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:39:y:2014:i:2:p:247-264

DOI: 10.1177/0312896213478435

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