On the Sources of Private Information in FX Markets

Michael Moore, R. Payne

Research output: Contribution to journalArticle

18 Citations (Scopus)

Abstract

We investigate the source of information advantage in inter-dealer FX trading using data on trades and counterparty identities. In liquid dollar exchange rates, information is concentrated among dealers that trade most frequently and specialize their activity in a particular rate. In cross-rates, traders that engage in triangular arbitrage are best informed. Better-informed traders are also located on larger trading floors. In cross-rates, the ability to forecast flows explains all of the advantage of the triangular arbitrageurs. In liquid dollar rates, specialist traders can forecast both order flow and the component of exchange rate changes that is uncorrelated with flow.
Original languageEnglish
Pages (from-to)1250-1262
Number of pages13
JournalJournal of Banking & Finance
Volume35
Issue number5
DOIs
Publication statusPublished - May 2011

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance

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