Foreign Exchange Fixings and Returns Around the Clock
Journal of Finance forthcoming
53 Pages Posted: 11 Feb 2020 Last revised: 6 Sep 2023
Date Written: January 23, 2023
The U.S. dollar appreciates in the run-up to foreign exchange fixes and depreciates thereafter, tracing a W-shaped return pattern around the clock. Return reversals for the top nine traded currencies over a 21-year period are pervasive, highly statistically significant, and imply daily swings of more than one billion U.S. dollars based on spot volumes. Using natural experiments, we show the existence of a published reference rate determines the timing of intraday return reversals. We present evidence consistent with an inventory risk explanation whereby foreign exchange dealers intermediate an unconditional demand for U.S. dollars at the fixes.
Keywords: foreign-exchange, fixings, high-frequency returns, inventory management, intermediation
JEL Classification: F30, F31, G15,
Suggested Citation: Suggested Citation