Foreign Exchange Volume: Sound and Fury Signifying Nothing?

33 Pages Posted: 30 Aug 2000 Last revised: 15 Aug 2022

See all articles by Richard K. Lyons

Richard K. Lyons

University of California, Berkeley; National Bureau of Economic Research (NBER)

Date Written: January 1995


This paper examines whether currency trading volume is informative, and under what circumstances. Specifically, we use transactions data to test whether trades occurring when trading intensity is high are more informative - dollar for dollar - than trades occurring when intensity is low. Theory admits both possibilities, depending primarily on the posited information structure. We present what we call a hot-potato model of currency trading, which explains why low-intensity trades might be more informative. In the model, the wave of inventory-management trading among dealers following innovations in order flow generates an inverse relationship between intensity and information content. Empirically, low-intensity trades are more informative, supporting the hot-potato hypothesis."

Suggested Citation

Lyons, Richard K., Foreign Exchange Volume: Sound and Fury Signifying Nothing? (January 1995). NBER Working Paper No. w4984, Available at SSRN:

Richard K. Lyons (Contact Author)

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