Quote revision and information flow among foreign exchange dealers

In a multi-dealer market without transaction disclosure, quote revision partially reveals the posting dealer's private information/belief and may have an impact on other dealers’ pricing decision. Using continuous quotes from three major dealers in the interbank foreign exchange market, I find significant information externality from one dealer's quotes to others. The information content of quote revision is positively related to the overall order flow to the market, as opposed to order flow to the posting dealer. At 15-min interval or above, public information becomes the dominant component that drives quote revision. Furthermore, public information appears to induce positive serial correlation and private information causes negative serial correlation in short-term quote revision.