Information flows in foreign exchange markets: Dissecting customer currency trades

Menkhoff, L., Sarno, L., Schmeling, M. & Schrimpf, A. (2016). Information flows in foreign exchange markets: Dissecting customer currency trades. Journal of Finance, 71(2), pp. 601-634. doi: 10.1111/jofi.12378

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Abstract

We study the information in order flows in the world's largest over-the-counter market, the foreign exchange (FX) market. The analysis draws on a data set covering a broad cross-section of currencies and different customer segments of FX end-users. The results suggest that order flows are highly informative about future exchange rates and provide significant economic value. We also find that different customer groups can share risk with each other effectively through the intermediation of a large dealer, and differ markedly in their predictive ability, trading styles, and risk exposure.

Item Type: Article
Additional Information: This is the peer reviewed version of the following article: Menkhoff, L., Sarno, L., Schmeling, M. & Schrimpf, A. (2016). Information flows in foreign exchange markets: Dissecting customer currency trades. Journal of Finance, 71(2), pp. 601-634., which has been published in final form at http://dx.doi.org/10.1111/jofi.12378. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
Uncontrolled Keywords: Order Flow, Foreign Exchange Risk Premia, Heterogeneous Information, Carry Trades
Subjects: H Social Sciences > HG Finance
Divisions: Cass Business School > Faculty of Finance
URI: http://openaccess.city.ac.uk/id/eprint/13781

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