Private information, bid-ask spreads and return volatility in the foreign exchange market

McGroarty, F. (2007) Private information, bid-ask spreads and return volatility in the foreign exchange market. In, 2007 Annual Meeting of the Financial Management Association International, Orlando, US, 18 Oct 2007. Orlando, US,


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Trading volume and order flow have both been closely associated with informed
trader activity in the market microstructure literature. Using theory that explains
regular intraday patterns in trading data, we transform these variables into proxies for
private information and examine their relationships with bid-ask spreads and return
volatility. We use a unique and unusually rich high-frequency intraday dataset from
the world’s largest financial market, namely, the electronic inter-dealer spot foreign
exchange market. Our analysis takes account of institutional features peculiar to this
order-driven market. Our empirical results strongly affirm our theoretical
understanding of how these markets work. They also reveal how the structure of the
inter-dealer spot FX market affects exchange rate volatility.

Item Type: Conference or Workshop Item (Paper)
Related URLs:
Keywords: high frequency data, foreign exchange, market microstructure, asymmetric information, order-driven
Subjects: H Social Sciences > HG Finance
H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
H Social Sciences > HJ Public Finance
Divisions : University Structure - Pre August 2011 > School of Management
ePrint ID: 58315
Accepted Date and Publication Date:
18 October 2007Published
Date Deposited: 18 Aug 2008
Last Modified: 31 Mar 2016 12:39

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