| dc.description.abstract | This dissertation studies the price discovery function across different trading periods in the foreign exchange markets and determinants for price discovery ability by quoted price and trades. We divide the 24 hours into four trading periods, including the Asian, European, European–U.S. overlapping, and U.S. markets. The data this dissertation used are from the Electronic Broking Services (EBS), and we employ the most traded currencies, EUR/USD and USD/JPY, to examine our hypothesis.
In the first essay, we focus on how macroeconomic announcements affect daily price discovery patterns. We find that the trading in the overlapping trading hours of London and New York only dominates price discovery in currency trading on days with U.S. announcements releases. But the local macro news announcements in Europe and Tokyo do not make Asian and European periods lead the price discovery in EUR/USD and USD/JPY markets, respectively.
In the second essay, we employ a new concept of volatility in pricing to discuss the intra-day price discovery patterns. Since the first essay find that European and Japanese macro-news does not significantly increase the information shares of European and Asian markets and recent literature suggests that discontinuous volatility component contains more or different information compared with continuous component, this paper therefore decomposes the price volatility into continuous and discontinuous components and separately employs both components to calculate information shares. Based on discontinuous volatility, this chapter presents that Asian market dominates price discovery in the USD/JPY and EUR/USD on days with Japanese and European news announcements, respectively. Moreover, the results further confirm that discontinuous volatility is more sensitive to macroeconomic announcements and unscheduled surprises. Hence, this study suggests that it would be better to separately discuss the news incorporation with continuous and jump components in price volatility.
Finally, to further study how the price discovery process is related with informed trading, we analyze changes in information content of order flow among four trading periods. We use the methodology developed by Hasbrouck (1991) to calculate the information content and show trades taken place in the overlapping trading hours of London and New York are the most informative than those in the other three trading periods. However, the releases of macro announcement actually do not alter the intraday pattern of trading informativeness across different trading periods, and this finding is even hold on days with European and Japanese announcements for the EUR/USD and USD/JPY, respectively. Overall, the findings in this essay are consistent with information shares computed with continuous price volatilities. | en_US |