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Tokyo insiders and the informational efficiency of the yen|dollar exchange rate

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  • Vicentiu Covrig

    (Department of Finance, California State University-Northridge, USA)

  • Michael Melvin

    (Department of Economics, Arizona State University, USA)

Abstract

When there is a high concentration of informed yen|dollar traders active in Tokyo, theory suggests that there should be a faster adjustment of the yen|dollar exchange rate to the full-information level. We exploit the data during a period believed to contain a high concentration of informed Japanese traders in order to test this hypothesis. Comparing the period of informed trader clustering to a similar period without the informed, we find that yen|dollar exchange rate quotes adjust to full-information levels three times faster when the informed are active than when they are not. These results are consistent with a view of the foreign exchange market where private information is at times quite important. Copyright © 2005 John Wiley & Sons, Ltd.

Suggested Citation

  • Vicentiu Covrig & Michael Melvin, 2005. "Tokyo insiders and the informational efficiency of the yen|dollar exchange rate," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 10(2), pages 185-193.
    • Handle: RePEc:ijf:ijfiec:v:10:y:2005:i:2:p:185-193
    DOI: 10.1002/ijfe.263
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    Cited by:

    1. Ito, Takatoshi & Hashimoto, Yuko, 2006. "Intraday seasonality in activities of the foreign exchange markets: Evidence from the electronic broking system," Journal of the Japanese and International Economies, Elsevier, vol. 20(4), pages 637-664, December.
    2. Yuko Hashimoto & Takatoshi Ito, 2009. "Effects of Japanese Macroeconomic Announcements on the Dollar/Yen Exchange Rate: High-Resolution Picture," NBER Working Papers 15020, National Bureau of Economic Research, Inc.
    3. Yuko Hashimoto & Takatoshi Ito & Takaaki Ohnishi & Misako Takayasu & Hideki Takayasu & Tsutomu Watanabe, 2012. "Random walk or a run. Market microstructure analysis of foreign exchange rate movements based on conditional probability," Quantitative Finance, Taylor & Francis Journals, vol. 12(6), pages 893-905, March.
    4. Kam Fong Chan & Phil Gray & Zheyao Pan, 2021. "The profitability of trading on large Lévy jumps," International Review of Finance, International Review of Finance Ltd., vol. 21(2), pages 627-635, June.
    5. Osler, Carol & Savaser, Tanseli, 2011. "Extreme returns: The case of currencies," Journal of Banking & Finance, Elsevier, vol. 35(11), pages 2868-2880, November.
    6. Han-Ching Huang & Yong-Chern Su & Hsin-Ying Wang, 2015. "Market Efficiency around the Announcement Day of Self-Tender Offers," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 9(1), pages 121-128.
    7. Geir H. Bjønnes & Carol L. Osler & Dagfinn Rime, 2009. "Asymmetric information in the interbank foreign exchange market," Working Paper 2008/25, Norges Bank.

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