Macroeconomic News, Order Flows and Exchange Rates

47 Pages Posted: 22 Jun 2007

See all articles by Ryan Love

Ryan Love

London School of Economics & Political Science (LSE)

Richard Payne

City University London - The Business School

Date Written: November 19, 2006

Abstract

In textbook models of exchange rate determination, the news contained in public information announcements is directly impounded into prices with there being no role for trading in this process of information assimilation. This paper directly tests this theoretical result using transaction level exchange rate return and trading data and a sample of scheduled macroeconomic announcements. The main result of the paper is that even information that is publicly and simultaneously released to all market participants is partially impounded into prices via the key micro-level price determinant — order flow. We quantify the role that order flow plays and find that approximately one third of price relevant information is incorporated via the trading process.

Keywords: Exchange rates, market microstructure, order flow

JEL Classification: F41, G15

Suggested Citation

Love, Ryan and Payne, Richard G., Macroeconomic News, Order Flows and Exchange Rates (November 19, 2006). Available at SSRN: https://ssrn.com/abstract=991890 or http://dx.doi.org/10.2139/ssrn.991890

Ryan Love

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Richard G. Payne (Contact Author)

City University London - The Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

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