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Informational Integration and FX Trading

Martin Evans and Richard K. Lyons ()
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Martin Evans and Richard K. Lyons: Department of Economics, Georgetown University, http://www9.georgetown.edu/faculty/evansm1/

Authors registered in the RePEc Author Service: Martin Evans ()

Working Papers from Georgetown University, Department of Economics

Abstract: This paper addresses international financial integration in a new way. We focus on informational integration, specifically, the importance of information conveyed by order flow in major currencies for pricing minor currencies. We develop a multi-currency model of portfolio allocation in the presence of dispersed information. We then test the model's implications using four months of concurrent transaction data on nine currencies. The model explains 45 to 78 percent of daily returns in all nine currencies. Moreover, its prediction that order flow in individual markets should be relevant for determining prices in other markets is borne out.

Keywords: Exchange Rates; Order flow; Financial Integration (search for similar items in EconPapers)
JEL-codes: F31 F36 (search for similar items in EconPapers)
Date: 2002-02-11
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Related works:
Chapter: Informational Integration and FX Trading (2017) Downloads
Journal Article: Informational integration and FX trading (2002) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:geo:guwopa:gueconwpa~02-02-11

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Roger Lagunoff Professor of Economics Georgetown University Department of Economics Washington, DC 20057-1036
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