Order flow information and spot rate dynamics
Journal article, Peer reviewed
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http://hdl.handle.net/11250/2422943Utgivelsesdato
2016Metadata
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Originalversjon
Journal of International Money and Finance, 69(2016)December, 45-68 http://dx.doi.org/10.1016/j.jimonfin.2016.06.018Sammendrag
This paper examines why order flows are empirically important drivers of spot exchange rate dynamics.
We consider a decomposition for the depreciation rate that must hold in any model and show
that order flows will appear as important proximate drivers when they convey significant incremental
information about future interest rate di↵erentials, risk premiums and/or long-run exchange rate levels
(i.e., information that cannot be inferred from publicly observed variables). We estimate the importance
of these incremental information flows for the EURNOK spot exchange rate using eight years of highquality,
disaggregated, end-user order flow data collected by the Norges Bank.
Beskrivelse
This is the accepted and refereed manuscript to the article