Heterogeneous Information Content of Global FX Trading

63 Pages Posted: 16 Oct 2018 Last revised: 13 Dec 2018

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: December 12, 2018

Abstract

This paper studies the information content of trades in the world's largest over-the-counter
market, the foreign exchange (FX) market. The results are derived from a comprehensive
order flow dataset distinguishing between different groups of market participants and covering a broad cross-section of currency pairs. Our fundings show that both the contemporary and permanent price impact are heterogeneous across agents, time, and currency pairs, supporting the asymmetric information theory. 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: Carry trade, Currency portfolios, Heterogeneity, Order flow, Price discovery

JEL Classification: G12, G15, F31

Suggested Citation

Ranaldo, Angelo and Somogyi, Fabricius, Heterogeneous Information Content of Global FX Trading (December 12, 2018). 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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