Informed traders' arrival in foreign exchange markets: Does geography matter? - Archive ouverte HAL
Journal Articles Empirical Economics Year : 2015

Informed traders' arrival in foreign exchange markets: Does geography matter?

Ramazan Gençay
  • Function : Author
Richard Olsen
  • Function : Author
Faruk Selçuk
  • Function : Author

Abstract

This article critically investigates the possibility that private information offering systematic profit opportunities exists in the spot foreign exchange market. Using a unique dataset with trader-specific limit and market order histories for more than 10,000 traders, we detect transaction behavior consistent with the informed trading hypothesis, where traders consistently make money. We then work within the theoretical framework of a high-frequency version of a structural microstructure trade model, which directly measures the market maker’s beliefs. Both the estimates of the trade model parameters and our model-free analysis of the data suggest that the time-varying pattern of the probability of informed trading is rooted in the strategic arrival of informed traders on a particular day-of-week, hour-of-day, or geographic location (market).

Dates and versions

hal-01563055 , version 1 (17-07-2017)

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Cite

Ramazan Gençay, Nikola Gradojevic, Richard Olsen, Faruk Selçuk. Informed traders' arrival in foreign exchange markets: Does geography matter?. Empirical Economics, 2015, 49 (4), pp.1431--1462. ⟨10.1007/s00181-015-0917-z⟩. ⟨hal-01563055⟩
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