Danielsson, Jon and Love, Ryan (2004) Feedback trading. Financial Markets Group Discussion Papers (510). Financial Markets Group, The London School of Economics and Political Science, London, UK.
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Abstract
Order flow has been found to carry information to the market. When assessing how informative order flow is, the VAR methodology is typically employed, using impulse response functions. However, in such analyses, the direction of causality runs explicitly from order flow to asset return. If data are sampled at anything other than at the highest frequencies then any feedback trading may well appear contemporaneous; trading in period t depends on the asset return in that interval. The implications of contemporaneous feedback trading are examined in the spot USD/EUR currency market and we find that when data are sampled at the one and five minute frequency, such trading strategies cause the price impact of order flow to be significantly larger than when feedback trading is ruled out.
| Item Type: | Monograph (Discussion Paper) |
|---|---|
| Official URL: | http://fmg.ac.uk |
| Additional Information: | © 2004 The Authors |
| Divisions: | Financial Markets Group |
| Subjects: | H Social Sciences > HF Commerce H Social Sciences > HG Finance H Social Sciences > HB Economic Theory |
| JEL classification: | G - Financial Economics > G1 - General Financial Markets > G10 - General |
| Date Deposited: | 06 Aug 2009 11:36 |
| Last Modified: | 15 Sep 2023 22:58 |
| URI: | http://eprints.lse.ac.uk/id/eprint/24760 |
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