Measuring the information content of customer foreign exchange orders. (May 2014)

• Record Type: Journal Article
• Authors: Rosov, Sviatoslav; Foster, F. Douglas
• Is Part Of: Australian journal of management. Volume 39:Number 2(2014:May)
• Page Start: 247
• Page End: 264
• Publication Date: 2014-05
• Subjects: Customer orders -- foreign exchange -- information flows; G23; Management -- Periodicals; Management -- Australia -- Periodicals; Business enterprises -- Finance -- Periodicals; Industrial management -- Australia -- Periodicals; 330
• DOI: 10.1177/0312896213478435
• Languages: English
• ISSNs: 0312-8962

Abstract

This paper investigates whether customer order flow conveys information about future foreign exchange (FX) prices. We use a unique data set from a leading Australian commercial bank that records every FX trade made by the bank in the spot Australian dollar/US dollar market between 2005 and 2010. We find little evidence in support of a cointegrating relation or a statistically significant correlation between customer order flow and FX returns. However, consistent with the liquidity provision role of non-financial customers in Evans and Lyons ((2002) Order flow and exchange rate dynamics. Journal of Political Economy 110: 170–180), we find a statistically significant negative correlation between order flow from the diversified economic sector and FX returns. A dynamic analysis suggests that order flow has little or no price impact on FX returns. These results suggest that the non-financial customer order flow of a commercial bank does not carry information about FX prices.