Topic
Foreign exchange market
About: Foreign exchange market is a research topic. Over the lifetime, 6661 publications have been published within this topic receiving 153384 citations. The topic is also known as: forex & FX.
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03 Sep 2012
TL;DR: It is discovered that generally social trades outperform individual trades, but the social reputation of the top traders is not completely determined by their performance due to social feedback even when users are betting their own money.
Abstract: In this paper, we study roles of social mechanisms in a financial system. Our data come from a novel on-line foreign exchange trading brokerage for individual investors, which also allows investors to form social network ties between each other and copy others' trades. From the dataset, we analyze the dynamics of this connected social influence systems in decision making processes. We discover that generally social trades outperform individual trades, but the social reputation of the top traders is not completely determined by their performance due to social feedback even when users are betting their own money. We also find that social influence plays a significant role in users' trades, especially decisions during periods of uncertainty. We report evidences suggesting that the dynamics of social influence contribute to market overreaction.
83 citations
Posted Content•
TL;DR: In this paper, the authors studied the intraday market quality for currency pairs with very different trading characteristics, such as the Euro-U.S. dollar and the Canadian dollar, and found that the Euro market quality is highest during European trading and lowest during Asian trading.
Abstract: This paper studies intraday market quality for currency pairs with very different trading characteristics, the Euro-U.S. dollar and the Canadian dollar-U.S. dollar. Two sets of tests - the first based on the ratio of long term to short term variances, and the second based on information spillovers - provide consistent conclusions regarding market quality. The variance ratio analysis shows that market quality is highest for the Euro during European trading and lowest during Asian trading. For the Canadian dollar, market quality is highest during North American trading and lowest during Asian trading. Analysis of information spillovers shows that innovations in returns and volatility for the more heavily-traded Euro predict returns and volatility for the Canadian dollar during Asian and European trading, but innovations for the dollar have predictive power for the Euro during North American trading. Our results suggest that foreign exchange market quality is high, not always when quoting and trading activity are heavy but rather, and somewhat unexpectedly, when activity is not only high, but also geographically focused and concentrated among a limited number of major dealers.
83 citations
TL;DR: In this article, the authors provide a review of the recent literature on order flow and exchange rate movements, and critically evaluate the practical value of customer order flow data that are commercially available to the wider market, as well as the forecasting properties of inter-dealer order flow.
Abstract: Research suggests that customer order flow should help predict exchange rates. We make two contributions. First, we provide a review of the recent literature on order flow and exchange rate movements. Second, we critically evaluate the practical value of customer order flow data that are commercially available to the wider market, as well as the forecasting properties of inter-dealer order flow. In line with microstructure theory, we find little evidence that the latter can forecast exchange rates, but our results also cast considerable doubt on the practical value to market practitioners of commercially available customer order flow data.
83 citations
TL;DR: This paper found that above average measures of deviations from trend and of volatility muted the response of the Reserve Bank of Australia, consistent with the constraint of intervening only when a clear trend is apparent.
83 citations
TL;DR: A survey of the literature on foreign exchange intervention, including sections on the theoretical channels through which intervention might affect exchange rates and a summary of the empirical findings is presented in this paper, emphasizing that intervention is intended to provide monetary authorities with an means of influencing their exchange rates independent from monetary policy.
Abstract: This article offers a survey of the literature on foreign exchange intervention, including sections on the theoretical channels through which intervention might affect exchange rates and a summary of the empirical findings. The survey emphasizes that intervention is intended to provide monetary authorities with an means of influencing their exchange rates independent from monetary policy, and tends to evaluate theoretical channels and empirical results from this perspective.
83 citations