Foreign Exchange Fixings and Returns around the Clock |
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| Authors: | INGOMAR KROHN PHILIPPE MUELLER PAUL WHELAN |
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| Institution: | 1. Correspondence: Philippe Mueller, Warwick Business School, University of Warwick, Scarman Rd, Coventry, England CV4 7A;2. e-mail: Philippe.Mueller@wbs.ac.uk.;3. Ingomar Krohn is at the Bank of Canada. Philippe Mueller is at the Finance Group, Warwick Business School. Paul Whelan is at the Department of Finance, CUHK Business School, The Chinese University of Hong Kong. We are grateful for comments from Stefan Nagel (Editor), the Associate Editor, and two anonymous referees. We also thank Benjamin Anderegg;4. Daniel Andrei;5. Patrick Augustin;6. Nick Baltas;7. Guido Baltussen;8. Nina Boyarchenko;9. Gino Cenedese;10. Alain Chaboud;11. Mike Chernov;12. Magnus Dahlquist;13. Pasquale Della Corte;14. Darrell Duffie;15. Peter Feldhütter;16. Michael Fleming;17. Thierry Foucault;18. Lukas Frei;19. Jean-Sébastien Fontaine;20. Patrick Green;21. Farouk Jivjav;22. Christian Julliard;23. Nina Karnaukh;24. Sven Klingler;25. David Lando;26. Dong Lou;27. Aytek Malkhozov;28. Paul Meggyesi;29. Michael Melvin;30. Albert Menkveld;31. Carol Osler;32. Lasse Pedersen;33. Tarun Ramadorai;34. Angelo Ranaldo;35. Steven Riddiough;36. Dagfinn Rime;37. Elvira Sojli;38. Vania Stavrakeva;39. Gyuri Venter;40. Ganesh Viswanath Natraj;41. Tony Zhang;42. and seminar and conference participants at various universities and financial institutions for helpful comments. The authors gratefully acknowledge financial support from the Canadian Derivatives Institute. Ingomar Krohn gratefully acknowledges financial support from the Economic and Social Research Council, Grant no. 1500668. Philippe Mueller gratefully acknowledges financial support from the Systemic Risk Centre at the LSE. Paul Whelan gratefully acknowledges financial support from the Danish Council for Independent Research Grant no. 9037-00105B. The views expressed in this paper are solely those of the authors and do not necessarily reflect the position of the Bank of Canada. We have read The Journal of Finance disclosure policy and have no conflicts of interest to disclose. |
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| Abstract: | The U.S. dollar appreciates in the run-up to foreign exchange (FX) fixes and depreciates thereafter, tracing a W-shaped return pattern around the clock. Return reversals for the top nine traded currencies over a 21-year period are pervasive and highly statistically significant, and they imply daily swings of more than one billion U.S. dollars based on spot volumes. Using natural experiments, we document the existence of a published reference rate determines the timing of intraday return reversals. We present evidence consistent with an inventory risk explanation whereby FX dealers intermediate unconditional demand for U.S. dollars at the fixes. |
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