Information Asymmetry in the Foreign Exchange Market: Effect on Exchange Rate Changes

• Main Authors: Kun-hsuan Ho, 何坤炫
• Other Authors: none
• Format: Others
• Language: zh-TW
• Published: 2012
• Online Access: http://ndltd.ncl.edu.tw/handle/86069352716191201465

碩士 === 國立中央大學 === 財務金融研究所 === 100 === So far,traditional literature were trying to find the relationship between macroeconomic variables and exchange rate, but it didn’t work anymore. Recent literature wanted to via the view of market microstructure to find the factor that affect exchange rate, such as Evans and Lyons (2002), they explained the changes in the mark / dollar exchange rate by order flow, R2 is 60%, so they thought the order flow implied the information about information based trading. After Evans and Lyons (2002), Breedon and Vitale (2010) divided the order flow into information based trading and portfolio balanced effect, the empirical results show that only portfolio balanced effect can affect exchange rate. For these inconsistent empirical results, this paper uses the two exchange rate:Euro-Dollar and Dollar-Yen which , and calculate the PIN (probability, of informed trade) and AdjPIN (adjusted PIN), to capture the phenomenon of information based trading. We select PIN, Adjpin, PSOS, Spread and order flow as our independent variables in OLS. Our empirical results show that order flow and AdjPIN are better proxy variable for information based trading but not for PIN.