Macroeconomic Announcements and Private Information in the Foreign Exchange Market

2005 ◽  
Author(s):  
Kate Phylaktis ◽  
Long Chen
Keyword(s):  
Foreign Exchange ◽  
Private Information ◽  
Foreign Exchange Market ◽  
Exchange Market ◽  
Macroeconomic Announcements

Price leadership in the South African foreign-exchange market: an empirical analysis

2018 ◽  
Vol 13 (1) ◽  
pp. 87-117
Author(s):  
Philani Shandu ◽  
Gideon Boako ◽  
Paul Alagidede
Keyword(s):  
South African ◽  
Foreign Exchange ◽  
Private Information ◽  
Foreign Exchange Market ◽  
Emerging Market ◽  
Exchange Market ◽  
Price Leadership ◽  
Content Type ◽  
Market Participants ◽  
News Event

Purpose The purpose of this paper is to investigate the information-based microstructure theory’s effectiveness in explaining short-term disturbances in currency prices by determining whether the price discovery process in the US dollar (USD) and South African rand (ZAR)-USD/ZAR spot market is led by an individual market agent, around an exogenous news event. Design/methodology/approach The influence of central bank intervention-related events on USD/ZAR volatility is investigated through the application of Brown-Forsythe variance equality tests on individual dealer and market quotes. Furthermore, the study applies bivariate Granger-causality tests to individual dealers’ USD/ZAR spot rate quotes, in an effort to determine whether certain dealers can be established as price leaders around an exogenous news event. Findings The study finds significant evidence to suggest the USD/ZAR market price leadership of Nomura forex (FX) prior to the public announcement of a South African Reserve Bank intervention-related news event. This finding supports microstructure theory’s assertions regarding the existence of foreign-exchange market characteristics such as trader heterogeneity and private information. Research limitations/implications The paper is conducted on a sample of eight USD/ZAR market agents, of which six are offshore dealers, and only two are located locally. Although these proportions are somewhat relatable to the locations of rand turnover, it would still be interesting to investigate the existence of price leadership solely amongst South African authorised FX dealers. Practical implications The results suggest the existence and price relevance of private information, as well as the heterogeneous nature of USD/ZAR market participants, based on informational asymmetries. The outcomes of the paper are useful to market participants, researchers, and central banks alike. Originality/value Though the study does not impugn the body of work related to the orthodox macroeconomic approaches to exchange rate determination, it seems apparent that much more microstructure-related research still has to be conducted in the context of emerging market currencies. It is this void that the current study has attempted to provide for in contribution to literature.

INDIVIDUAL FOREIGN EXCHANGE INVESTORS, RETURN PREDICTABILITY AND MARKET TIMING

2017 ◽  
Vol 12 (01) ◽  
pp. 1750001 ◽  
Author(s):  
MOUSTAFA ABUELFADL
Keyword(s):  
Transaction Costs ◽  
Empirical Evidence ◽  
Foreign Exchange ◽  
Private Information ◽  
Foreign Exchange Market ◽  
Linear Independence ◽  
Market Timing ◽  
Return Predictability ◽  
Exchange Market

This study tests whether individual foreign exchange (Forex) investors can predict future returns, time the market and generate alpha after transaction costs. Using a sample of 1,231 Forex trading accounts and 72,072 trades, the results show that individual Forex investors can predict future returns up to eight days after trade execution, even after controlling for Volatility. The results of return predictability are significant because they support the idea that linear independence is rejected as well as provide empirical evidence that private information is available in the foreign exchange market.

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