A guided tour of the market microstructure approach to exchange rate determination

Journal of Economic Surveys

Volumn 21, Issue 5, 2007, Pages 903-934

  Vitale, Paolo ^a  

^a UNIVERSITY OF CHIETI   (Italy)

Author keywords

Exchange rate dynamics; Foreign exchange microstructure; Order flow

Indexed keywords

CURRENCY MARKET; EXCHANGE RATE; THEORETICAL STUDY;

EID: 35349008578     PISSN: 09500804     EISSN: 14676419     Source Type: Journal    
DOI: 10.1111/j.1467-6419.2007.00524.x     Document Type: Review

References (70)

1. Andersen, T., Bollerslev, T., Diebold, F. and Vega, C. (2003) Micro effects of macro announcements: Real-time price discovery in foreign exchange. American Economic Review 93: 38-62.
2. Bacchetta, P. and van Wincoop, E. (2006) Can information heterogeneity explain the exchange rate determination puzzle? American Economic Review 96: 552-576.
3. Backus, D. (1984) Empirical models of the exchange rate: Separating the wheat from the chaff. Canadian Journal of Economics 27: 824-846.
4. Bagehot, W. (1971) The only game in town. Financial Analyst Journal 27: 29-34.
5. Berger, D.W., Chaboud, A.P., Chernenko, S.V., Howorka, E., Krishnasami Iyer, R.S., Liu, D. and Wright, J.H. (2005) Order flow and exchange rate dynamics in electronic brokerage system data. Mimeo, Federal Reserve Board, Washington, DC.
6. Biønnes, G.H. and Rime, D. (2001) Customer trading and information in foreign exchange markets. Mimeo, Norwegian School of Management, Oslo.
7. Biønnes, G.H. and Rime, D. (2005) Dealer behavior and trading systems in foreign exchange markets. Journal of Financial Economics 75: 571-605.
8. BIS (2001) Triennial Central Bank Survey: Foreign Exchange and Derivatives Market Activity in 2001. Basel: Bank of International Settlements.
9. BIS (2004) Triennial Central Bank Survey: Foreign Exchange and Derivatives Market Activity in 2004. Basel: Bank of International Settlements.
10. Breedon, F. and Vitale, P. (2004) An empirical study of liquidity and information effects of order flow on exchange rates. CEPR Discussion Paper 4586, London.
11. Carpenter, A. and Wang, J. (2003) Sources of private information in FX trading. Mimeo, University of New South Wales.
12. Catte, P., Galli, G. and Rebecchini, S. (1994) Concerted interventions and the dollar: An analysis of daily data. In P.B. Kenen, F. Papadia and F. Saccomanni (eds), The International Monetary System. Cambridge: Cambridge University Press.
13. Danielsson, J. and Love, R. (2004) Feedback trading. Mimeo, London School of Economics.
14. Danielsson, J., Payne, R. and Luo, J. (2002) Exchange rate determination and intermarket order flow effects. Mimeo, London School of Economics.
15. Dominguez, K.M. (1992) Exchange Rate Efficiency and the Behavior of International Asset Markets. New York: Garland.
16. Dominguez, K.M. (2003) The market microstructure of central bank intervention. Journal of International Economics 59: 25-45.
17. Dominguez, K.M. and Frankel, J.A. (1993a) Does foreign exchange intervention matter ?The portfolio effect. American Economic Review 83: 1356-1369.
18. Dominguez, K.M. and Frankel, J.A. (1993b) Does Foreign Exchange Intervention Work ? Washington, DC: Institute for International Economics.
19. Dominguez, K.M. and Frankel, J.A. (1993c) Foreign exchange intervention: an empirical assessment. In J.A. Frankel (ed.), On Exchange Rates. Cambridge, MA: MIT Press.
20. Dunne, P., Hau, H. and Moore, M. (2005) International order flow: explaining equity and exchange rate returns. Mimeo, Dublin.
21. Easley, D. and O'Hara, M. (1987) Price, trade size, and information in securities markets. Journal of Financial Economics 19: 69-90.
22. Edison, H.J. (1993) The effectiveness of central-bank intervention: A survey of the literature after 1982. Special Paper 18, Princeton University.
23. Engel, C. and West, K.D. (2005) Exchange rates and fundamentals. Journal of Political Economy 113: 485-517.
24. Evans, M.D. and Lyons, R.K. (2000) The price impact of currency trades: implications for intervention. Mimeo, University of California at Berkeley.
25. Evans, M.D. and Lyons, R.K. (2002) Order flow and exchange rates dynamics. Journal of Political Economy 110: 170-180.
26. Evans, M.D. and Lyons, R.K. (2003) How is macro news transmitted to exchange rates ?NBER Working Paper 9433.
27. Evans, M.D. and Lyons, R.K. (2004) A new micro model of exchange rate dynamics. NBER Working Paper 10379.
28. Evans, M.D. and Lyons, R.K. (2005a) Exchange rate fundamentals and order flow. NBER Working Paper 11042.
29. Evans, M.D. and Lyons, R.K. (2005b) Meese-Rogoff redux: Micro-based exchange rate forecasting. American Economic Review, Papers and Proceedings 95: 405-414.
30. Frankel, J.A. (1982) In search of the exchange rate risk premium: A six currency test assuming mean-variance optimization. Journal of International Money and Finance 1: 255-276.
31. Frankel, J.A. (1993) On Exchange Rates. Boston, MA: MIT Press.
32. Frankel, J.A. and Engel, C.M. (1984) Do asset demand functions optimize over the mean and variance of real returns?A six currency test. Journal of International Economics 17: 209-223.
33. Frankel, J.A. and Rose, A.K. (1994) A survey of empirical research on nominal exchange rates. NBER Working Paper 4865.
34. Froot, K. and Ramadorai, T. (2005) Currency returns, intrinsic value, and institutional investor flows. Journal of Finance 60: 1535-1566.
35. Glosten, L. and Milgrom, P. (1985) Bid, ask and transaction prices in a specialist market with heterogeneously informed traders. Journal of Financial Economics 13: 71-100.
36. Goodhart, C.A.E. (1993) News effects in a high-frequency model of the sterling-dollar exchange rate. Journal of Applied Econometrics 8: 1-13.
37. Gosh, A. (1992) Is it signaling?Exchange intervention and the dollar-deutsche mark rate. Journal of International Economics 32: 201-220.
38. Grossman, S. and Stiglitz, J. (1980) On the impossibility of informationally efficient markets. American Economic Review 70: 393-408.
39. Hardouvelis, G.A. (1985) Exchange rates, interest rates, and money-stock announcements: A theoretical exposition. Journal of International Money and Finance 4: 443-454.
40. Hasbrouck, J. (1991) Measuring the information content of stock trades. Journal of Finance 46: 178-208.
41. Hau, H. and Rey, H. (2004) Can portfolio rebalancing explain the dynamics of equity returns, equity flows and exchange rates? American Economic Review, Papers and Proceedings 93: 126-133.
42. Hau, H. and Rey, H. (2006) Exchange rates, equity prices and capital flows. Review of Financial Studies 19: 273-317.
43. Hau, H., Killen, W. and Moore, M. (2002) How has the euro changed the foreign exchange market? Economic Policy 17: 149-192.
44. Hellwig, M. (1980) On the aggregation of information in competitive markets. Journal of Economic Theory 22: 477-498.
45. Ito, T. and Roley, V.V. (1987) News from the U.S. and Japan: Which moves the yen/dollar exchange rate? Journal of Monetary Economics 19: 255-277.
46. Jurgensen, P. (1983) Report of the Working Group on Exchange Market Intervention. Washington, DC: Department of Treasury.
47. Kaminsky, G.L. and Lewis, K.K. (1996) Does foreign exchange intervention signal future monetary policy? Journal of Monetary Economics 37: 285-312.
48. Killen, W., Lyons, R. and Moore, M. (2005) Fixed versus floating: lessons from the EMS order flow. Journal of International Money and Finance, forthcoming.
49. Klein, M. and Rosengren, E. (1991) Foreign exchange intervention as a signal of monetary policy. New England Economic Review May/June, 39-50.
50. Kyle, A.S. (1985) Continuous auction and insider trading. Econometrica 53 (6): 1315-1335.
51. Lewis, K.K. (1993) Are foreign exchange intervention and monetary policy related and does it really matter? NBER Working Paper 4377.
52. Loopesko, B. (1984) Relationships among exchange rates, interventions, and interest rates: An empirical investigation. Journal of International Money and Finance 3: 257-277.
53. Love, R. and Payne, R. (2003) Macroeconomic news, order flow and exchange rates. Mimeo, London School of Economics.
54. Lyons, R.K. (1995) Tests of microstructural hypotheses in the foreign exchange market. Journal of Financial Economics 39: 321-351.
55. Lyons, R.K. (1997) A simultaneous trade model of the foreign exchange hot potato. Journal of International Economics 42: 275-298.
56. Lyons, R.K. (2001) The Microstructure Approach to Exchange Rates. Boston, MA: MIT Press.
57. Madhavan, A. (2000) Market microstructure: A survey. Journal of Financial Markets 3: 205-258.
58. Mark, N.C. (1995) Exchange rates and fundamentals: Evidence on long-horizon predictability. American Economic Review 85: 201-218.
59. Marsh, I.W. and O'Rourke, C. (2004) Customer order flow and exchange rate movements: Is there really information content. Mimeo, Cass Business School, London.
60. McDonald, R.R. and Taylor, M.P. (1993) The monetary approach to the exchange rate: Rational expectations, long-run equilibrium and forecasting. International Monetary Fund Staff Papers 40: 89-107.
61. Meese, R. and Rogoff, K. (1983) Empirical exchange rate models of the seventies: Do they fit out of the sample? Journal of International Economics 13: 3-24.
62. Mussa, M. (1981) The Role of Official Intervention. New York: Group of Thirty.
63. Neumann, M. (1984) Intervention in the mark/dollar market: The authorities' reaction. Journal of International Money and Finance 3: 223-239.
64. O'Hara, M. (1995) Market Microstructure Theory. Oxford: Blackwell.
65. Payne, R. (2003) Informed trade in spot foreign exchange markets: An empirical investigation. Journal of International Economics 61: 307-329.
66. Payne, R. and Vitale, P. (2003) A transaction level study of the effects of central bank intervention on exchange rates. Journal of International Economics 61: 331-352.
67. Rime, D. (2003) New electronic trading systems in foreign exchange markets. In New Economy Handbook. New York: Elsevier Science.
68. Rogoff, K. (1984) On the effect of sterilized intervention: An analysis of weekly data. Journal of Monetary Economics 14: 133-150.
69. Sarno, L. and Taylor, M.P. (2001) Official intervention in the foreign exchange market: Is it effective and, if so, how does it work ? Journal of Economic Literature 39: 839-868.
70. Watanabe, T. (1992) The signaling effect of foreign exchange intervention: The case of Japan. Mimeo, Bank of Japan.