Local Information in Foreign Exchange Markets

Lukas Menkhoff and Maik Schmeling

Hannover Economic Papers (HEP) from Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät

Abstract: This study shows that order flow in a foreign exchange market only has permanent price impact if it comes from certain regions. These regions are - as predicted by the local information hypothesis - centers of political and financial decision making. It is revealing that orders from other regions only show a very short-lived but no permanent price impact. Local information is so important that it carries over from the usually considered market orders to aggressively-priced limit orders too. The finding is robust to various market conditions, common news shocks and consideration of feedback trading.

Keywords: Local information hypothesis; price impact; limit orders; informed traders (search for similar items in EconPapers)
JEL-codes: D82 F31 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2006-04
New Economics Papers: this item is included in nep-fmk
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Journal Article: Local information in foreign exchange markets (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:han:dpaper:dp-331

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