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Document Type:Latin Dissertation
Language of Document:English
Record Number:53567
Doc. No:TL23521
Call number:‭3282490‬
Main Entry:Esen Onur
Title & Author:The role of asymmetric information among investors in the foreign exchange marketEsen Onur
College:University of Virginia
Date:2007
Degree:Ph.D.
student score:2007
Page No:83
Abstract:The microstructure approach to the foreign exchange market has been very popular recently, especially after years of macroeconomic research has failed to offer an adequate explanation for short run movements in the foreign exchange market. The foreign exchange microstructure literature is still young and it is rapidly growing. Thus far, two very fruitful approaches have involved focusing on order flows in the interdealer market and understanding the relationship between customer order flows and changes in exchange rate. This thesis follows the latter approach. This paper presents an empirical study of how customer heterogeneity matters in the currency markets. It analyzes daily purchase and sales data from the Bank of Israel covering a six-year span between 2000 and 2006. The results indicate that financial customers are the main speculators and their holdings are positively correlated with changes in the exchange rate, whereas a negative correlation is observed for non-financial customers. A one million dollar larger purchase than sales by foreign financials induces an increase in the Shegel/Dollar rate by 0.060 percent over a month and a similar net flow from other customers results in a 0.046 percent fall in the exchange rate. I also find evidence that disaggregated order flow data, coupled with interest rate differentials, accounts for 40 percent of the changes in the exchange rate at monthly frequencies. The rest of this thesis offers a theoretical model for understanding investor decisions in the foreign exchange market. The main result of the model indicates that when future macroeconomic variables improve, the change in currency holdings of financial investors is positively correlated with the change in exchange rate, and that the change in currency holdings of non-financial investors is negatively correlated with the change in exchange rate. The model also offers a rich framework for analyzing the information content of the foreign exchange market.
Subject:Social sciences; Asymmetric information; Foreign exchange market; International finance; Investors; Economics; Finance; Foreign exchange rates; Currency; Information; Investment policy; Foreign exchange markets; Models; Studies; 0508:Finance; 0501:Economics
Added Entry:E. v. Wincoop
Added Entry:University of Virginia