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Foreign Exchange Order Flows and the Thai Exchange Rate Dynamics

Jakree Koosakul and Nasha Ananchotikul
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Jakree Koosakul: Bank of Thailand
Nasha Ananchotikul: Bank of Thailand

PIER Discussion Papers from Puey Ungphakorn Institute for Economic Research

Abstract: Applying the microstructure approach to exchange rates, this paper aims to shed light on the price formation process in the Thai foreign exchange market using a unique supervisory dataset of daily foreign exchange transactions from all licensed dealers in Thailand. We examine the main drivers of different types of order flows and the effect of resident and non-resident customer order flows on the Thai exchange rate. The results suggest that non-resident order flows have an important influence on movements in the Thai baht, while resident order flows do not. Regarding investors' trading behavior, we find that non-resident order flows are driven by both fundamentals and movements of the Thai baht. Specifically, non-resident players appear to be 'trend-followers' with regard to exchange rate returns, exerting buying pressure when the baht recently appreciated. In contrast, domestic players tend to behave as 'contrarians', by buying the Thai baht after it depreciates.

Keywords: FX order flow; FX microstructure; Exchange rate; Thailand (search for similar items in EconPapers)
JEL-codes: F31 G15 (search for similar items in EconPapers)
Pages: 19 page
Date: 2019-01, Revised 2019-01
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Published in PIER Discussion Paper Series

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