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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
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
CRR-05-01
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
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.

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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
ORCID for Frank McGroarty: ORCID iD orcid.org/0000-0003-2962-0927

Catalogue record

Date deposited: 23 May 2006
Last modified: 06 Jun 2018 12:46

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Contributors

Author: Frank McGroarty ORCID iD
Author: Owain ap Gwilym
Author: Stephen Thomas

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