Herding and the information content of trades in the Australian dollar market [An article from: Pacific-Basin Finance Journal]

This digital document is a journal article from Pacific-Basin Finance Journal, published by Elsevier in 2007. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
This study shows that the information content of FX transactions depends on the identity of market participants. Using spot FX transactions of a major Australian bank, we find that central banks have the greatest price impact, followed by non-bank financial institutions (NBFIs) such as hedge funds and mutual funds. Trades by non-financial corporations have the least impact on dealer pricing. In the interbank market, dealers with greater private information tend to choose direct trading which has lower post-trade transparency. Indirect trading via brokers is partially revealed to the market and has little price impact. The price impact largely comes from institutions in the top quartile of the trading volume. Furthermore, NBFIs have the greatest propensity for herding, followed by interbank dealers. Non-financial corporations do not herd in their trades. Except for central banks, the differential impact of market participants can largely be explained by their propensity for herding.