FX option volume
Robert Czech (),
Pasquale Della Corte (),
Shiyang Huang () and
Tianyu Wang ()
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Pasquale Della Corte: Imperial College London and Centre for Economic Policy Research (CEPR)
Shiyang Huang: University of Hong Kong
Tianyu Wang: Bank of England
No 964, Bank of England working papers from Bank of England
We study the information content of foreign exchange (FX) option volume using a unique dataset on over-the-counter FX options with disclosed counterparty identities and contract characteristics. Our study shows that FX option volume can predict future exchange rate returns, especially when the demand for the US dollar is high. In support of information-based arguments, we also document that the exchange rate predictability is stronger around macro-announcement days or when using options with higher embedded leverage. Finally, we show that hedge funds and real money investors have superior skills in predicting future exchange rates compared to other investor types.
Keywords: Currency return; foreign exchange option; Informed trading; dollar demand (search for similar items in EconPapers)
JEL-codes: F31 G12 G14 G15 (search for similar items in EconPapers)
Pages: 50 pages
New Economics Papers: this item is included in nep-ifn, nep-mst and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0964
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