Foreign Exchange Fixings and Returns Around the Clock

52 Pages Posted: 11 Feb 2020 Last revised: 24 May 2021

See all articles by Ingomar Krohn

Ingomar Krohn

Bank of Canada

Philippe Mueller

Warwick Business School Finance Group

Paul Whelan

Copenhagen Business School

Date Written: January 17, 2020

Abstract

This paper documents a new stylised fact in foreign exchange markets: intraday currency returns display prolonged reversals around the major benchmark fixings, characterised by an appreciation of the U.S. dollar pre-fix and a depreciation post-fix. We propose an explanation for this finding based on the interaction between time-zone segmented transaction demand and foreign exchange dealers who provide immediacy around the clock. Consistent with this explanation, intraday currency reversals in both spot and futures markets are explained by pre-fix order imbalance in the dealer market. However, controlling for dealer order imbalance, trading pressure in FX futures has little explanatory power in any market, highlighting the importance of heterogeneous trader types in exchange rate determination.

Keywords: foreign-exchange, fixings, high-frequency returns, intermediation.

JEL Classification: F30, F31, G15,

Suggested Citation

Krohn, Ingomar and Mueller, Philippe and Whelan, Paul, Foreign Exchange Fixings and Returns Around the Clock (January 17, 2020). Available at SSRN: https://ssrn.com/abstract=3521370 or http://dx.doi.org/10.2139/ssrn.3521370

Ingomar Krohn (Contact Author)

Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

Philippe Mueller

Warwick Business School Finance Group ( email )

Gibbet Hill Rd
Coventry, CV4 7AL
Great Britain

Paul Whelan

Copenhagen Business School ( email )

Copenhagen Business School
Finance Department
Copenhagen, DC 1854
Denmark

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