The dependence of foreign exchange rates on order flow is investigated for four major exchange rate pairs, EUR/USD, EUR/GBP, GBP/USD and USD/JPY, across sampling frequencies ranging from 5 min to 1 week. Strong explanatory power is discovered for all sampling frequencies. We also uncover...

We exploit full order level information from an electronic FX broking system to provide a comprehensive account of the determination of its liquidity. We not only look at bid-ask spreads and trading volumes, but also study the determination of order entry rates and depth measures derived from...

This paper is an empirical examination of liquidity determination on an electronic FX broking system. We focus on two facets of liquidity. First we study the dynamics of liquidity supply and demand via event-time order arrival probabilities and calendar-time order entry rates. We demonstrate...

Most of the existing empirical literature on FX market microstructure uses indicative quote data derived from Reuters EFX Screens. This paper examines the adequacy of such data as proxies for firm, tradeable quotes. We present a comparison of prices (and volumes) derived from Reuters D2000-2...

We characterize the investor’s optimal portfolio allocation subject to a budget constraint and a probabilistic VaR constraint in complete markets environments with a finite number of states. The set of feasible portfolios might no longer be connected or convex, while the number of local optima...

Under the new Capital Accord, banks choose between two different types of risk management systems, the standard or the internal rating based approach. The paper considers how a bank's preference for a risk management system is affected by the presence of supervision by bank regulators. The model...