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Foreign Exchange Fixings and Returns Around the Clock
Bank of Canada 2021.10.07 원문보기
We document a new empirical finding in the foreign exchange market: currency returns show long and significant intraday drifts that reverse strongly at specific points during the day. These reversals align with the times of the three major institutional benchmark fixings, when reference rates are published. These rates are used regularly in executing trades, hedging decisions and valuating portfolios. Using data from a major inter-dealer platform, we show there is a predictable and significant appreciation of the US dollar in the hours before the fixes and a depreciation after the fixes. Intraday price reversals are explained by imbalances in the orders in the FX spot market before fixes. We show that these reversals are, on average, tilted toward a demand for US dollars. We also highlight that imbalances in the order flow from trading desks of large banks play a larger role for intraday price drifts than flows from speculators or hedgers. Thus, our results show that a combination of a variety of market participants having different trading motives is crucial in the fragmented FX market.
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