Segmentation and time-of-day patterns in foreign exchange markets
Journal
Journal of Banking and Finance
ISSN
0378-4266
ISSN-Digital
1872-6372
Type
journal article
Date Issued
2009-12
Author(s)
Abstract
This paper sheds light on a puzzling pattern in spot foreign exchange markets: domestic currencies appreciate (depreciate) systematically during foreign (domestic) working hours. This phenomenon spans many years and several exchange rates, and overrides calendar effects. We argue that it is mainly due to liquidity and inventory patterns that emerge from the combination of two factors: domestic agents tend to be net buyers of foreign currency and to trade mostly in their country's working hours. The prevalence of domestic (foreign) traders demanding the counterpart currency during domestic (foreign) working hours implies sell-price (buy-price) pressure on the domestic currency during domestic (foreign) working
hours.
hours.
Language
English
Keywords
Exchange rates
Time-of-day patterns
Market segmentation
Microstructure
Calendar effects
Liquidity
Inventory
High-frequency data
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Elsevier
Publisher place
Amsterdam [u.a.]
Volume
33
Number
12
Start page
2199
End page
2206
Pages
8
Subject(s)
Division(s)
Eprints ID
217477