Heterogeneous information content of global FX trading

This work studies the information content of trades in the world's largest over-the-counter(OTC) market, the foreign exchange (FX) market. It analyses a novel, comprehensiveorder flow dataset, distinguishing amongst different groups of market participantsand covering a large cross-section of currency pairs. We find compelling evidence of heterogeneous superior information across agents, time and currency pairs, consistent withthe asymmetric information theory and OTC market fragmentation. A trading strategybased on the permanent price impact, capturing asymmetric information risk, generateshigh returns even after accounting for risk, transaction cost and other common risk factorsdocumented in the FX literature