Informativeness of Trade Size in Foreign Exchange Markets
Posted: 17 Nov 2016
Date Written: November 11, 2016
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
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