Early warning systems (EWSs) are subject to restrictions that apply to exchange rates in general: fundamentals matter but their influence is small and unstable. Despite this limitation four major lessons emerge: First, EWSs have robust forecasting power and thus help policy-makers to prevent...

Nowadays foreign exchange interventions occur in emerging market economies whereas empirical studies on interventions mainly refer to advanced economies. However, interventions in emerging markets are different from those in advanced economies: they occur regularly and central banks have...

In this paper we demonstrate that there is evidence of an unstable and nonlinear relationship between fundamentals and exchange rates. Modeling this time-varying nature of the importance of fundamentals in a Markov switching framework substantially improves the fit of the real interest rate...

This study shows that order flow in a foreign exchange market only has permanent price impact if it comes from certain regions. These regions are – as predicted by the local information hypothesis – centers of political and financial decision making. It is revealing that orders from other...

This study examines profits and speculation in the USD/EUR trading of a bank in Germany over a four-month period. Dealing activity at the bank generates profits but speculation does not seem to contribute to this. We find that speculative positions fail to become profitable within a 30-minutes'...

This paper makes three contributions to our understanding of the price discovery process in currency markets. First, it provides evidence that this process cannot be the familiar one based on adverse selection and customer spreads, since such spreads are inversely related to a trade?s likely...

Technical analysis involves the prediction of future exchange rate (or other asset-price) movements from an inductive analysis of past movements. A reading of the large literature on this topic allows us to establish a set of stylised facts, including the facts that technical analysis is an...

This paper contributes empirically to our understanding of informed traders. It analyzes traders? characteristics in an electronic limit order market via anonymous trader identities. We use six indicators of informed trading in a cross-sectional multivariate approach to identify traders with...

How is it possible that exchange rates move in the long run towards fundamentals, while professionals form consistently irrational exchange rate expectations? We look at this puzzle from a different perspective by analyzing investor sentiment in the US-dollar market. First, long-horizon...

This paper shows how traders learn from post-trade identity disclosure in a currency limit order market. We establish that identity disclosure reveals information and show how traders react by reversing their order flow in line with the better informed. Informed traders primarily incorporate...