The Big Players in the Foreign Exchange Market: Do They Trade on Information or Noise?

Shang-Jin Wei and Jungshik Kim

No 6256, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies whether there exists private information in the foreign exchange market, and whether speculation reduces or exacerbates volatility. It makes use of a recent data set on foreign currency positions by large market participants that include positions on options and other derivatives. This is the first data set that describes comprehensive currency positions of market participants. There are two main findings. First, not only the absolute value of the options position but also that of spot, forward and futures positions by large participants Granger-causes exchange rate volatility. This suggests that the large participants' currency speculation does not stabilize exchange rate volatility. Second, regression analyses do not find any positive association between large participants' position in a foreign currency with its subsequent appreciation. A non-parametric approach finds some weak support for a positive association but not on a systematic level. This casts doubt on the view that large participants have better information about the future movement of exchange rates. It further strengthens the case that the large players trade on noise rather than on information.

JEL-codes: F31 (search for similar items in EconPapers)
Date: 1997-11
Note: IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (36)

Downloads: (external link)
http://www.nber.org/papers/w6256.pdf (application/pdf)

Related works:
Working Paper: The Big Players in the Foreign Exchange Market: Do They Trade on Information or Noise? (1999)
Working Paper: The Big Players in the Foreign Exchange Market: Do They Trade on Information or Noise? (1999)
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: https://EconPapers.repec.org/RePEc:nbr:nberwo:6256

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w6256

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().