Order choices under information asymmetry in foreign exchange markets

Yin Feng Gau; Zhen Xing Wu

doi:10.1016/j.intfin.2014.01.008

Order choices under information asymmetry in foreign exchange markets

Yin Feng Gau, Zhen Xing Wu

Department of Finance

Research output: Contribution to journal › Article › peer-review

1 Scopus citations

Abstract

This article investigates the information content in orders submitted to the Electronic Broking Services (EBS) spot foreign exchange broking system. Using intradaily data pertaining to orders for the two most liquid currency pairs, EUR-USD and USD-JPY, the authors examine the price impact of orders by level of aggressiveness in the EBS; the results show that patient limit orders have the greatest impact on changes in exchange rates. The results of post-trade profitability in the EUR-USD market also suggest patient limit orders convey more information than the other two types of orders, implying that informed traders may prefer patient limit orders to aggressive limit orders to exploit information advantages in the EUR-USD market.

Original language	English
Pages (from-to)	106-118
Number of pages	13
Journal	Journal of International Financial Markets, Institutions and Money
Volume	30
Issue number	1
DOIs	https://doi.org/10.1016/j.intfin.2014.01.008
State	Published - May 2014

Keywords

Aggressiveness
Information asymmetry
Order choice

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10.1016/j.intfin.2014.01.008

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abstract = "This article investigates the information content in orders submitted to the Electronic Broking Services (EBS) spot foreign exchange broking system. Using intradaily data pertaining to orders for the two most liquid currency pairs, EUR-USD and USD-JPY, the authors examine the price impact of orders by level of aggressiveness in the EBS; the results show that patient limit orders have the greatest impact on changes in exchange rates. The results of post-trade profitability in the EUR-USD market also suggest patient limit orders convey more information than the other two types of orders, implying that informed traders may prefer patient limit orders to aggressive limit orders to exploit information advantages in the EUR-USD market.",

keywords = "Aggressiveness, Information asymmetry, Order choice",

author = "Gau, {Yin Feng} and Wu, {Zhen Xing}",

note = "Funding Information: Yin-Feng Gau gratefully acknowledges a research grant from the National Science Council ( NSC 101-2410-H-008-029 ). The authors thank the EBS for providing the data. The paper has benefited from helpful comments and suggestions from an anonymous referee. All remaining errors are ours. ",

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N2 - This article investigates the information content in orders submitted to the Electronic Broking Services (EBS) spot foreign exchange broking system. Using intradaily data pertaining to orders for the two most liquid currency pairs, EUR-USD and USD-JPY, the authors examine the price impact of orders by level of aggressiveness in the EBS; the results show that patient limit orders have the greatest impact on changes in exchange rates. The results of post-trade profitability in the EUR-USD market also suggest patient limit orders convey more information than the other two types of orders, implying that informed traders may prefer patient limit orders to aggressive limit orders to exploit information advantages in the EUR-USD market.

AB - This article investigates the information content in orders submitted to the Electronic Broking Services (EBS) spot foreign exchange broking system. Using intradaily data pertaining to orders for the two most liquid currency pairs, EUR-USD and USD-JPY, the authors examine the price impact of orders by level of aggressiveness in the EBS; the results show that patient limit orders have the greatest impact on changes in exchange rates. The results of post-trade profitability in the EUR-USD market also suggest patient limit orders convey more information than the other two types of orders, implying that informed traders may prefer patient limit orders to aggressive limit orders to exploit information advantages in the EUR-USD market.

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Order choices under information asymmetry in foreign exchange markets

Abstract

Keywords

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