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Foreign Exchange Fixings and Returns Around the Clock

Author

Listed:
  • Ingomar Krohn
  • Philippe Mueller
  • Paul Whelan

Abstract

We document that intraday currency returns display systematic reversals around the major benchmark fixings, characterized by an appreciation of the U.S. dollar pre-fix and a depreciation post-fix. We propose an explanation based on constrained intermediation by foreign exchange dealers. Exploiting data from a major inter-dealer platform, we present evidence of an unconditional demand for U.S. dollars at currency fixings. Dealers hedge this demand pre-fix, driving intraday reversals in both over-the-counter and exchange-traded markets. Furthermore, order imbalances in futures markets are not related to intraday reversal patterns, suggesting that the marginal investors in foreign exchange markets are intermediaries.

Suggested Citation

  • Ingomar Krohn & Philippe Mueller & Paul Whelan, 2021. "Foreign Exchange Fixings and Returns Around the Clock," Staff Working Papers 21-48, Bank of Canada.
    • Handle: RePEc:bca:bocawp:21-48
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    Cited by:

    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

    Keywords

    Financial markets; Exchange Rates; Market structure and pricing;
    All these keywords.

    JEL classification:

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

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