publication . Article . Preprint . 2007

Segmentation and Time-of-Day Patterns in Foreign Exchange Markets

Angelo Ranaldo;
Open Access
  • Published: 01 Jan 2007 Journal: SSRN Electronic Journal (eissn: 1556-5068, Copyright policy)
  • Publisher: Elsevier BV
Abstract
This paper sheds light on a puzzling pattern in foreign exchange markets: Domestic currencies appreciate (depreciate) systematically during foreign (domestic) working hours. These time-of-day patterns are statistically and economically highly significant. They pervasively persist across many years, even after accounting for calendar effects. This phenomenon is difficult to reconcile with the random walk and market efficiency hypothesis. Microstructural and behavioural explanations suggest that the main raison d'etre is a domestic currency bias coupled with market segmentation. The prevalence of domestic (foreign) traders demanding the counterpart currency during...
Subjects
free text keywords: foreign exchange market, microstructure, behavioural finance, time-of-day patterns, market segmentation, calendar effects, inventory, asymmetric information, high-frequency data, Market liquidity, Market segmentation, Economics, Financial economics, Domestic market, Information asymmetry, Foreign exchange risk, Foreign exchange market, Finance, business.industry, business, Currency, Business studies, Economics and Econometrics, jel:F31, jel:G10, jel:G14, jel:G15
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publication . Article . Preprint . 2007

Segmentation and Time-of-Day Patterns in Foreign Exchange Markets

Angelo Ranaldo;