Price Discovery and Liquidity Recovery: Forex Market Reactions to Macro Announcements

Masahiro Yamada and Takatoshi Ito ()

No 27036, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We examine whether the forex market quality, measured by the speed of price discovery and liquidity recovery after macro statistics announcements, has improved using the EBS high-frequency data for 20 years. Considering the recent rise of computer-based trading, a popular conjecture is that the market quality has improved. Our empirical analysis, however, suggests that an improving trend is only observed in price discovery. Moreover, two measures are negatively correlated because an increasing number of traders improves liquidity but slows down price discovery. Theoretically, the latter finding implies that “fast” traders have a poor interpretation of how the news will impact prices.

JEL-codes: E44 F31 G14 G15 (search for similar items in EconPapers)
Date: 2020-04
New Economics Papers: this item is included in nep-gen, nep-mac and nep-mst
Note: IFM ME
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Citations: View citations in EconPapers (1)

Published as Masahiro Yamada & Takatoshi Ito, 2022. "Price discovery and liquidity recovery: Forex market reactions to macro announcements," Journal of International Money and Finance, vol 120.

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