Private information, excessive volatility and intraday empirical regularities in the spot foreign exchange market
Private information, excessive volatility and intraday empirical regularities in the spot foreign exchange market
Financial markets generally, and the spot foreign exchange market in particular, are reputed to be excessively volatile. Previous research has linked this excess volatility to private information. This article re-examines the theory and challenges that link. Empirical evidence suggests that random variation between buy and sell volumes is a more important driver than private information in the spot foreign exchange market. The paper also develops theoretical propositions for the relationships between key market variables on an intraday basis. High frequency data is used to examine the role of private information in explaining well documented intraday patterns that persist in the time series of a number of trade related variables, including return volatility.
high frequency data, foreign exchange, market microstructure, asymmetric information, order-driven
University of Southampton
McGroarty, Frank
693a5396-8e01-4d68-8973-d74184c03072
ap Gwilym, Owain
dbd356d9-b22d-420b-a980-7341f6d52f34
Thomas, Stephen
3ebf2346-25f1-4f19-b854-7a7da0cee9ca
2005
McGroarty, Frank
693a5396-8e01-4d68-8973-d74184c03072
ap Gwilym, Owain
dbd356d9-b22d-420b-a980-7341f6d52f34
Thomas, Stephen
3ebf2346-25f1-4f19-b854-7a7da0cee9ca
McGroarty, Frank, ap Gwilym, Owain and Thomas, Stephen
(2005)
Private information, excessive volatility and intraday empirical regularities in the spot foreign exchange market
(Discussion Papers in Centre for Risk Research, CRR-05-01)
Southampton, UK.
University of Southampton
Record type:
Monograph
(Discussion Paper)
Abstract
Financial markets generally, and the spot foreign exchange market in particular, are reputed to be excessively volatile. Previous research has linked this excess volatility to private information. This article re-examines the theory and challenges that link. Empirical evidence suggests that random variation between buy and sell volumes is a more important driver than private information in the spot foreign exchange market. The paper also develops theoretical propositions for the relationships between key market variables on an intraday basis. High frequency data is used to examine the role of private information in explaining well documented intraday patterns that persist in the time series of a number of trade related variables, including return volatility.
Text
CRR-05-01.pdf
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More information
Published date: 2005
Keywords:
high frequency data, foreign exchange, market microstructure, asymmetric information, order-driven
Identifiers
Local EPrints ID: 36849
URI: http://eprints.soton.ac.uk/id/eprint/36849
PURE UUID: 9be3fb06-f396-47e9-87f1-990f168cc2a9
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Date deposited: 23 May 2006
Last modified: 16 Mar 2024 03:33
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Contributors
Author:
Frank McGroarty
Author:
Owain ap Gwilym
Author:
Stephen Thomas
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