Economics at your fingertips  

Carry Trades, Order Flow, and the Forward Bias Puzzle

Francis Breedon, Dagfinn Rime () and Paolo Vitale ()

Journal of Money, Credit and Banking, 2016, vol. 48, issue 6, 1113-1134

Abstract: We investigate the relation between foreign exchange (FX) order flow and the forward bias. We outline a decomposition of the forward bias according to which a negative correlation between interest rate differentials and order flow creates a time‐varying risk premium consistent with that bias. Using 10 years of data on FX order flow, we find that more than half of the forward bias is accounted for by order flow—with the rest being explained by expectational errors. We also find that carry trading increases currency‐crash risk in that order flow generates negative skewness in FX returns.

Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18) Track citations by RSS feed

Downloads: (external link)

Related works:
Working Paper: Carry Trades, Order Flow and the Forward Bias Puzzle (2015) Downloads
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:

Access Statistics for this article

Journal of Money, Credit and Banking is currently edited by Robert deYoung, Paul Evans, Pok-Sang Lam and Kenneth D. West

More articles in Journal of Money, Credit and Banking from Blackwell Publishing
Bibliographic data for series maintained by Wiley Content Delivery ().

Page updated 2023-04-08
Handle: RePEc:wly:jmoncb:v:48:y:2016:i:6:p:1113-1134