Trading Activity and Exchange Rates in High-Frequency EBS Data

37 Pages Posted: 27 Sep 2007

See all articles by Alain Chaboud

Alain Chaboud

Board of Governors of the Federal Reserve System

Sergey Chernenko

Purdue University - Department of Management

Jonathan H. Wright

Johns Hopkins University - Department of Economics

Date Written: September 2007

Abstract

The absence of data has, until now, precluded virtually all research on trading volume in the foreign exchange market. This paper introduces a new high-frequency foreign exchange dataset from EBS (Electronic Broking Service) that includes trading volume in the global interdealer spot market. The dataset gives volumes and prices at the one-minute frequency over a five-year time period in the euro-dollar and dollar-yen currency pairs. We first document intraday volume patterns in euro-dollar and dollar-yen trading, noting the effects of macroeconomic news announcements but also purely institutional factors. We study the effects of UK-specific holidays on euro-dollar and dollar-yen trading volume and find that these holidays cause a sharp decline in trading volume even among dealers outside the UK, a natural experiment that we interpret as further evidence that trading activity is not driven solely by the flow of news about fundamentals. Studying the reaction to U.S. macroeconomic announcements, we show that a sharp pickup in trading volume generally occurs in the minutes following news announcements. This rise in trading volume happens even if the data release is entirely in line with market expectations, and it is often negatively related to the dispersion of ex-ante market expectations. Finally, focusing on one particular data release at the one-second frequency, we document a two-stage reaction whereby the price jumps immediately after the announcement without much trading volume, while trading volume and volatility then surge about 15 seconds after the data release.

Keywords: Trading volume, foreign exchange, high-frequency data, news announcements

JEL Classification: F31, G14

Suggested Citation

Chaboud, Alain and Chernenko, Sergey and Wright, Jonathan H., Trading Activity and Exchange Rates in High-Frequency EBS Data (September 2007). FRB International Finance Discussion Paper No. 903, Available at SSRN: https://ssrn.com/abstract=1017511 or http://dx.doi.org/10.2139/ssrn.1017511

Alain Chaboud (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
(202) 452 3756 (Phone)

Sergey Chernenko

Purdue University - Department of Management ( email )

West Lafayette, IN 47907-1310
United States
(765) 494-4413 (Phone)

HOME PAGE: http://https://sites.google.com/site/chernenkosergey/

Jonathan H. Wright

Johns Hopkins University - Department of Economics ( email )

3400 Charles Street
Baltimore, MD 21218-2685
United States

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