Love, Ryan and Payne, Richard (2003) Macroeconomic news, order flows and exchange rates. Discussion paper, 475. Financial Markets Group, London School of Economics and Political Science, London, UK.
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Under rational expectations and efficient markets, the news contained in public information announcements is directly impounded into prices with there being no role for trades in this process of information assimilation. This paper directly tests this assertion using transaction level exchange rate data and a sample of scheduled macroeconomic announcements. The main result of the paper is that even information that is publicly and simultaneously released to all market participants is largely impounded into prices via the key micro-level price determinant — order flow. We quantify the role that order flow plays and find that between a half and two thirds of price relevant information is incorporated into prices via the trading process.
|Item Type:||Monograph (Discussion Paper)|
|Additional Information:||© 2003 The Authors|
|Library of Congress subject classification:||H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
|Sets:||Research centres and groups > Financial Markets Group (FMG)
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