Informed and uninformed trading on the Australian dollar

Warren P. Hogan, Jonathan A. Batten*

*Corresponding author for this work

Research output: Contribution to journalArticle

9 Citations (Scopus)

Abstract

Using a high-frequency data set of the spot Australian/US dollar, this study examines the distribution of quotes, spreads, and returns across the trading day. By identifying the direction of trade and the subsequent quote returns from contributing banks, the segmented nature of the market into market-makers and informed and uninformed traders is investigated. The results suggest that the economic gain possible from private information is maximised over 2 to 5 quotes and is rapidly eroded by 20 quotes (about 2 min later during busy trading times) as other new information enters the market. Also, the analysis is revealing of discontinuities in trading and the volatility of pricing across the trading day.

Original languageEnglish
Pages (from-to)61-75
Number of pages15
JournalInternational Review of Financial Analysis
Volume14
Issue number1
DOIs
Publication statusPublished - 2005

Keywords

  • Foreign exchange
  • Market microstructure
  • Price discovery

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