Informational Linkages Across Trading Regions: Evidence from Foreign Exchange Markets

47 Pages Posted: 8 Mar 2007

See all articles by Fang Cai

Fang Cai

Federal Reserve Board

Edward Howorka

EBS Group Limited

Jon Wongswan

Phatra Securities

Date Written: March 2006


This paper studies informational linkages in the foreign exchange market across trading regions for the euro-dollar and dollar-yen currency pairs, using high-frequency intraday data from Electronic Broking Services (EBS). In contrast with previous studies that use indicative quote frequency to proxy for trading activity, we use actual regional trading volume to identify five distinct trading regions in the foreign exchange market: Asia Pacific, the Asia-Europe overlap, Europe, the Europe-America overlap, and America. We study spillovers in five proxies for information, including return, direction of return, volatility, trading activity (trading volume and number of transactions), and order flow, across the five trading regions. Based on our regional model for each proxy variable, we find statistically significant evidence for informational linkages at both the own-region and the inter-region levels, but the economic significance of own-region spillovers is much more important than that of inter-region spillovers, especially for volatility and trading activity. In addition, order flow spillovers from the Europe-America overlap trading region are the most important source of spillovers to other trading regions for both currency pairs.

Keywords: exchange rate, volatility, trading activity, trading volume, order flow, high-frequency data

JEL Classification: F31, G15

Suggested Citation

Cai, Fang and Howorka, Edward and Wongswan, Jon, Informational Linkages Across Trading Regions: Evidence from Foreign Exchange Markets (March 2006). Available at SSRN: or

Fang Cai

Federal Reserve Board ( email )

Office of Financial Stability Policy and Research
1801 K St NW
Washington, DC 20551
United States
202-452-3540 (Phone)
202-263-4850 (Fax)

Edward Howorka

EBS Group Limited ( email )

10 Paternoster Square
London EC4M 7DY
United Kingdom

Jon Wongswan (Contact Author)

Phatra Securities ( email )

11F Muang Thai-Phatra Office Tower 1
252/6 Ratchadapisek Road
Bangkok, 10400

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