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Periodicity of trading activity in foreign exchange markets

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  • Tao Chen
  • Kam C. Chan
  • Haodong Chang

Abstract

Using the high‐frequency exchange rates of 25 global currency pairs, we document a striking clock‐time periodicity in which trading activity surges at the beginning of a minute. Additional analyses indicate that clock‐time spikes are accompanied by a lower level of liquidity. Moreover, we find that time‐clustering trades yield permanent price impacts, are devoted to efficient pricing, and make a significant contribution to price discovery. Finally, we investigate three informed scenarios to ascertain how trades at spikes acquire information beforehand and reflect them in markets. Taken together, our findings reinforce the view in the literature that subminute periodicity emanates from algorithmic trading.

Suggested Citation

  • Tao Chen & Kam C. Chan & Haodong Chang, 2022. "Periodicity of trading activity in foreign exchange markets," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 45(2), pages 445-465, June.
    • Handle: RePEc:bla:jfnres:v:45:y:2022:i:2:p:445-465
    DOI: 10.1111/jfir.12280
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    References listed on IDEAS

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