Order Flow and Exchange Rate Co-Movement

61 Pages Posted: 5 Jan 2017  

Vincent Kleinbrod

affiliation not provided to SSRN

Xiaoming Li

Massey University - School of Economics and Finance (Albany)

Date Written: January 3, 2017

Abstract

This paper investigates how order flows drive dynamic co-movements of exchange rates. We allow for asymmetric correlation responses to positive/negative shocks, control for structural breaks, bid-ask spreads and volatility effect of order flows, employ alternative order flow measures, and consider different intraday frequencies. Order flow differences between five major currencies have significant negative effects on the co-movements of their exchange rates vis-à-vis the US dollar. There are two structural breaks in the correlation structures, due to the 2007 GFC and the 2010 EDC. Joint positive shocks are followed by greater comovements of the exchange rates studied than joint negative shocks.

Keywords: Order Flow, Exchange Rate, Co-Movement

JEL Classification: F31, C32, C51

Suggested Citation

Kleinbrod, Vincent and Li, Xiaoming, Order Flow and Exchange Rate Co-Movement (January 3, 2017). Asian Finance Association (AsianFA) 2017 Conference. Available at SSRN: https://ssrn.com/abstract=2893295 or http://dx.doi.org/10.2139/ssrn.2893295

Vincent Kleinbrod

affiliation not provided to SSRN

Xiaoming Li (Contact Author)

Massey University - School of Economics and Finance (Albany) ( email )

Private Bag 102904
North Shore
Auckland, 0745
New Zealand
+64 9 4140800 ext. 43177 (Phone)
+64 9 441 8177 (Fax)

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