Private Information, Excessive Volatility and Intraday Empirical Regularities in the Spot Foreign Exchange Market

Centre for Risk Research Working Papers, School of Management Paper No. CRR-05-01

39 Pages Posted: 2 Jun 2005

See all articles by Frank McGroarty

Frank McGroarty

University of Southampton - Southampton Business School

Stephen Thomas

University of Southampton - School of Management

Owain Ap Gwilym

Bangor Business School

Date Written: March 2005

Abstract

Financial markets generally, and the spot foreign exchange market in particular, are reputed to be excessively volatile. Previous research has linked this excess volatility to private information. This article re-examines the theory and challenges that link. Empirical evidence suggests that random variation between buy and sell volumes is a more important driver than private informaion in the spot foreign exchange market. The paper also develops theoretical propositions for the relationships between key market variables on an intraday basis. High frequency data is used to examine the role of private information in explaining well documented intraday patterns that persist in the time series of a number of trade related variables, including return volatility.

Keywords: High frequency data, Foreign exchange, Market microstructure, Asymmetric information, Order-driven

JEL Classification: F31, G12, G15, D4

Suggested Citation

McGroarty, Frank and Thomas, Stephen and ap Gwilym, Owain, Private Information, Excessive Volatility and Intraday Empirical Regularities in the Spot Foreign Exchange Market (March 2005). Centre for Risk Research Working Papers, School of Management Paper No. CRR-05-01. Available at SSRN: https://ssrn.com/abstract=734083 or http://dx.doi.org/10.2139/ssrn.734083

Frank McGroarty (Contact Author)

University of Southampton - Southampton Business School ( email )

Southampton, SO17 1BJ
United Kingdom

Stephen Thomas

University of Southampton - School of Management ( email )

Highfield
Southampton S017 1BJ, Hampshire SO17 1BJ
United Kingdom

Owain Ap Gwilym

Bangor Business School ( email )

Bangor Business School
College Road
Gwynedd LL57 2DG, Wales LL57 2DG
United Kingdom

HOME PAGE: http://www.bangor.ac.uk/business/staff/owain_ap_gwilym.php.en

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