The impact of public information flow and private information flow on the foreign exchange market
Abstract
The purpose of the present study is to investigate the impact of public information flow and private information flow on the foreign exchange market. While previous studies focus on the "quality" of information (in terms of specific content of information), our study will look at the "quantity" of information (in terms of intensity of information arrivals). With a large amount of money market headline news data available from Olsen & Associates Ltd., we are able to construct a public information flow index measured as the number of money market headline news submitted by Reuters' News Service per unit of time. Also, we construct three market activity indexes: price change, exchange rate volatility and price quote arrival rate. Then, we ask the straightforward question of whether public information flow affects the foreign exchange market in terms of the three indexes defined above. By using an information flow model, we also empirically extract "general information flow", which is the combination of both public information flow and private information flow. Then, we filter out private information flow signal. Again, we examine the relationship between private information flow and market activity. Our study shows that both private and public information flow are significant related to market activity, especially exchange rate volatility and price quote arrival rate. However, we can not identify significant linear relationship between information flow (whether public or private) and the change of price. We also compare the role of both private and public information flow. The daily private information flow seems to play a more dominant role than public information flow on the foreign exchange market. In the meantime, we find that private information flow is a leading signal of future public information flow.
Degree
Ph.D.
Advisors
Carlson, Purdue University.
Subject Area
Finance
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