Informativeness of Trade Size in Foreign Exchange Markets

Posted: 17 Nov 2016

See all articles by Deniz Erdemlioglu

Deniz Erdemlioglu

IESEG School of Management and CNRS - France

Nikola Gradojevic

University of Guelph, Department of Economics and Finance; University of Bologna - Rimini Center for Economic Analysis (RCEA)

Ramazan Gencay

Simon Fraser University

Date Written: November 11, 2016

Abstract

This article investigates a trading strategy that relies on private information in an electronic spot foreign exchange market. In a structural microstructure model extended for high-frequency data, our analysis links the informational content of trading activity to order size. We find that large currency orders are likely to be placed by informed traders during increased price volatility episodes. In addition, the data suggest that excess kurtosis in exchange rate returns (corresponding to large price-contingent trades) is significantly lower than that in small trades.

Keywords: Foreign Exchange Markets, Volume, Trade Size, Volatility, Informed Trading, Noise Trading, Market Microstructure

JEL Classification: F3, F31, G0, G1

Suggested Citation

Erdemlioglu, Deniz and Gradojevic, Nikola and Gencay, Ramazan, Informativeness of Trade Size in Foreign Exchange Markets (November 11, 2016). Forthcoming in Economics Letters. Available at SSRN: https://ssrn.com/abstract=2870754

Deniz Erdemlioglu

IESEG School of Management and CNRS - France ( email )

3 rue de la Digue
Lille, 59000
France

Nikola Gradojevic (Contact Author)

University of Guelph, Department of Economics and Finance ( email )

50 Stone Road East
Guelph, Ontario N1G 2W1
Canada

HOME PAGE: http://https://www.uoguelph.ca/economics/users/nikola-gradojevic

University of Bologna - Rimini Center for Economic Analysis (RCEA) ( email )

Via Patara, 3
Rimini (RN), RN 47900
Italy

Ramazan Gencay

Simon Fraser University ( email )

Department of Economics
8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

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