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Foreign Exchange Fixings and Returns around the Clock

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  • INGOMAR KROHN
  • PHILIPPE MUELLER
  • PAUL WHELAN

Abstract

The U.S. dollar appreciates in the run‐up to foreign exchange (FX) fixes and depreciates thereafter, tracing a W‐shaped return pattern around the clock. Return reversals for the top nine traded currencies over a 21‐year period are pervasive and highly statistically significant, and they imply daily swings of more than one billion U.S. dollars based on spot volumes. Using natural experiments, we document the existence of a published reference rate determines the timing of intraday return reversals. We present evidence consistent with an inventory risk explanation whereby FX dealers intermediate unconditional demand for U.S. dollars at the fixes.

Suggested Citation

  • Ingomar Krohn & Philippe Mueller & Paul Whelan, 2024. "Foreign Exchange Fixings and Returns around the Clock," Journal of Finance, American Finance Association, vol. 79(1), pages 541-578, February.
    • Handle: RePEc:bla:jfinan:v:79:y:2024:i:1:p:541-578
    DOI: 10.1111/jofi.13306
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    1. Filippou, Ilias & Maurer, Thomas A. & Pezzo, Luca & Taylor, Mark P., 2024. "Importance of transaction costs for asset allocation in foreign exchange markets," Journal of Financial Economics, Elsevier, vol. 159(C).

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    More about this item

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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