Foreign Exchange Volume

66 Pages Posted: 23 Aug 2017 Last revised: 18 Apr 2019

See all articles by Antonio Gargano

Antonio Gargano

University of Melbourne - Department of Finance

Steven J. Riddiough

University of Melbourne

Lucio Sarno

City University London - Sir John Cass Business School; Centre for Economic Policy Research (CEPR)

Date Written: April 17, 2019

Abstract

We provide the first comprehensive study of foreign exchange (FX) volume using a novel dataset offering the broadest coverage of volume at high frequency. FX volume is related to volatility, liquidity, information arrival, and return spreads across equity and bond markets. However we find it is the unexpected component of volume that can predict short-term currency returns: when a currency pair’s daily volume is unexpectedly low, it exhibits a strong return reversal over the following day. This predictability is economically valuable for currency investors and is consistent with an asymmetric information hypothesis, in which privately informed trading increases with volume.

Keywords: foreign exchange volume, informed trading, return reversal, transaction costs

JEL Classification: F31, G12, G14, G15

Suggested Citation

Gargano, Antonio and Riddiough, Steven J. and Sarno, Lucio, Foreign Exchange Volume (April 17, 2019). Available at SSRN: https://ssrn.com/abstract=3019870 or http://dx.doi.org/10.2139/ssrn.3019870

Antonio Gargano

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

Steven J. Riddiough (Contact Author)

University of Melbourne ( email )

Faculty of Business and Economics
Level 12 198 Berkeley Street
Melbourne, Victoria 3010
Australia
+61 (0)3834 40044 (Phone)

HOME PAGE: http://www.stevenriddiough.com

Lucio Sarno

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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