The Impact of Order Flow on the Foreign Exchange Market: A Copula Approach |
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Authors: | Yoshihiro Kitamura |
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Institution: | (2) Brandeis International Business School, Brandeis University, Waltham, USA; |
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Abstract: | Using the copula function, I propose a new econometric method to measure the state-dependent impact of order flows on returns
in foreign exchange markets and examine whether this impact is affected by the number of informed traders. My results indicate
that the impact of the order flow decreases as trading becomes more informed. This finding suggests an especially important
theoretical implication: that the effect of competition among informed traders tends to dominate that of the adverse selection
problem faced by uninformed traders in the euro/dollar and yen/dollar markets. |
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Keywords: | |
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