Heterogeneous Information Content of Global FX Trading

60 Pages Posted: 16 Oct 2018 Last revised: 19 Apr 2019

See all articles by Angelo Ranaldo

Angelo Ranaldo

University of St. Gallen; University of St. Gallen - School of Finance

Fabricius Somogyi

University of St. Gallen

Date Written: April 04, 2019

Abstract

This work studies the information content of trades in the world's largest over-the-counter (OTC) market, the foreign exchange (FX) market. It analyses a novel, comprehensive order flow dataset, distinguishing amongst different groups of market participants and covering a large cross-section of currency pairs. Both the contemporary and permanent price impact are heterogeneous across agents, time and currency pairs, consistent with the asymmetric information theory and OTC market fragmentation. A trading strategy based on the permanent price impact, capturing superior information, generates high returns even after accounting for risk, transaction costs and other common risk factors documented in the FX literature.

Keywords: Asymmetric information, Currency portfolios, Heterogeneity, Order flow, OTC, Price discovery

JEL Classification: G12, G15, F31

Suggested Citation

Ranaldo, Angelo and Somogyi, Fabricius, Heterogeneous Information Content of Global FX Trading (April 04, 2019). University of St.Gallen, School of Finance Research Paper No. 2018/20. Available at SSRN: https://ssrn.com/abstract=3263279 or http://dx.doi.org/10.2139/ssrn.3263279

Angelo Ranaldo (Contact Author)

University of St. Gallen ( email )

Swiss Institute of Banking and Finance s/bf-HSG
Unterer Graben 21
St. Gallen, 9000
Switzerland
+41712247010 (Phone)

HOME PAGE: http://www.sbf.unisg.ch/Lehrstuehle/Lehrstuhl_Ranaldo/Homepage_Ranaldo.aspx

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Fabricius Somogyi

University of St. Gallen ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

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