Asymmetric Information Risk in FX Markets

138 Pages Posted: 16 Oct 2018 Last revised: 20 Sep 2023

See all articles by Angelo Ranaldo

Angelo Ranaldo

University of St. Gallen; Swiss Finance Institute

Fabricius Somogyi

D’Amore-McKim School of Business

Date Written: April 6, 2020


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 data set, distinguishing among different groups of market participants and covering a large cross-section of currency pairs. We find compelling evidence of heterogeneous superior information 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 asymmetric information risk, generates high returns even after accounting for risk, transaction cost, and other common risk factors documented in the FX literature.

Keywords: Asymmetric information, Currency portfolios, Order flow, OTC, Risk premium

JEL Classification: G12, G15, F31

Suggested Citation

Ranaldo, Angelo and Somogyi, Fabricius, Asymmetric Information Risk in FX Markets (April 6, 2020). Journal of Financial Economics, Volume 140, Issue 2, May 2021, Pages 391-411, Available at SSRN: or

Angelo Ranaldo (Contact Author)

University of St. Gallen ( email )

School of Finance
Unterer Graben 21
St. Gallen, 9000
+41712247010 (Phone)


Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
+41796637711 (Phone)


Fabricius Somogyi

D’Amore-McKim School of Business ( email )

360 Huntington Ave.
Boston, MA 02115
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
PlumX Metrics