Abstract
Contemporaneous and positive correlation between order flow and exchange rate is a stylized fact. I postulate that the order flow driven by informed trading has a significant price impact. I also do that little price reversal occurs in the subsequent period. The Markov-switching model provides probabilities of a significant price impact and little price reversal. I apply these probabilities to measure the probability of informed trading. The measure explains a greater share of the random walk component of price compared to other measures offered by previous studies.
| Original language | English |
|---|---|
| Journal | Journal of International Financial Markets, Institutions and Money |
| DOIs | |
| Publication status | Accepted/In press - 2015 Jan 19 |
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Keywords
- Exchange rates
- High-frequency data
- Informed trading
- Markov-switching model
ASJC Scopus subject areas
- Economics and Econometrics
- Finance
Cite this
The probability of informed trading measured with price impact, price reversal, and volatility. / Kitamura, Yoshihiro.
In: Journal of International Financial Markets, Institutions and Money, 19.01.2015.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - The probability of informed trading measured with price impact, price reversal, and volatility
AU - Kitamura, Yoshihiro
PY - 2015/1/19
Y1 - 2015/1/19
N2 - Contemporaneous and positive correlation between order flow and exchange rate is a stylized fact. I postulate that the order flow driven by informed trading has a significant price impact. I also do that little price reversal occurs in the subsequent period. The Markov-switching model provides probabilities of a significant price impact and little price reversal. I apply these probabilities to measure the probability of informed trading. The measure explains a greater share of the random walk component of price compared to other measures offered by previous studies.
AB - Contemporaneous and positive correlation between order flow and exchange rate is a stylized fact. I postulate that the order flow driven by informed trading has a significant price impact. I also do that little price reversal occurs in the subsequent period. The Markov-switching model provides probabilities of a significant price impact and little price reversal. I apply these probabilities to measure the probability of informed trading. The measure explains a greater share of the random walk component of price compared to other measures offered by previous studies.
KW - Exchange rates
KW - High-frequency data
KW - Informed trading
KW - Markov-switching model
UR - http://www.scopus.com/inward/record.url?scp=84959419948&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84959419948&partnerID=8YFLogxK
U2 - 10.1016/j.intfin.2016.02.001
DO - 10.1016/j.intfin.2016.02.001
M3 - Article
AN - SCOPUS:84959419948
JO - Journal of International Financial Markets, Institutions and Money
JF - Journal of International Financial Markets, Institutions and Money
SN - 1042-4431
ER -