Using ten years of FX transactions data we demonstrate that a large share of the FX forward discount bias can be accounted for by order flow. A simple microstructure-based decomposition suggests that order flow creates a timevarying risk premium that is correlated with the forward discount. The...

This paper, which is motivated by the literature on international asset pricing and recent work on exchange rate determination, investigates dynamic relationships between major currency and equity markets.Using a multivariate GARCH framework, we examine conditional cross-autocorrelations between...

The offshore renminbi (CNH) exchange rate is the exchange rate of the Chinese currency transacted outside China. We study the CNH exchange rate dynamics and its links with onshore exchange rates. Using a specialized microstructure dataset, we find that CNH is significantly affected by its order...

In this paper we investigate whether cross-sectional information from local equity marketscontained information on devaluation expectations during the Asian crisis. We concentrate onthe information content of equity prices as these markets were in general the largest and mostliquid at the time...

There is a broad consensus that the quality of the political system and its institutionsare fundamental for a country’s prosperity. The paper focuses on political events inItaly over the past 35 years and asks whether the adoption of the euro in 1999 hashelped insulate Italy’s financial...

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

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

This paper extends earlier studies on exchange rate expectations' formation by using newdata and adding information about forecasters' reliance on fundamental analysis for the firsttime. We replicate the conventional result of non rational expectations. Moreover, biases inexpectations are...

We study the relationship between foreign exchange trading activity and volatility on theUSD/EUR foreign exchange market on the basis of a unique data set around the events of09/11/2001. We find that volatility and bid-ask spreads are by far larger at that time, but theshock is not persistent....

This paper sheds new light on a long-standing puzzle in the international finance literature, namely, that exchange rate expectations appear inaccurate and even irrational. We find for a comprehensive dataset that individual forecasters' performance is skill-based. 'Superior' forecasters show...