Is There Private Information in the FX Market?: The Tokyo Experiment, Issue 5936

Front Cover
National Bureau of Economic Research, 1997 - Foreign exchange - 27 pages
It is a common view that private information in the foreign exchange market does not exist. We provide evidence against this view. The evidence comes from the introduction of trading in Tokyo over the lunch-hour. Lunch return variance doubles with the introduction of trading, which cannot be due to public information since the flow of public information did not change with the trading rules. Having eliminated public information as the cause, we exploit the volatility pattern over the whole day to discriminate between the two alternatives: private information and pricing errors. Three key results support the predictions of private-information models. First, the volatility U-shape flattens: greater revelation over lunch leaves a smaller share for the morning and afternoon. Second, the U-shape tilts upward, an implication of information whose private value is transitory. Finally, the morning exhibits a clear U-shape when Tokyo closes over lunch, and it disappears when trading is introduced

From inside the book

What people are saying - Write a review

We haven't found any reviews in the usual places.

Contents

Section 1
11
Section 2
21
Section 3

Other editions - View all

Common terms and phrases