The Role and Magnitude of Order Flows in Seoul Foreign Market

Chae-Shick Chung

doi:10.11644/KIEP.JEAI.2010.14.1.214

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East Asian Economic Review Vol. 14, No. 1, 2010. pp. 237-260.

DOI https://dx.doi.org/10.11644/KIEP.JEAI.2010.14.1.214

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The Role and Magnitude of Order Flows in Seoul Foreign Market

Author
Chae-Shick Chung	Sogang University;Konkuk University;The Bank of Korea cschung@sogang.ac.kr

EAER is an open access journal distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license.

Abstract

In this paper, we test the role of order flows in KRW/USD. We use transaction based high frequency data (electronic broker) happened in 2006. For robustness check, we extend our analysis by combining exchange rates (indicative quotes v.s. transaction rate), frequency (transaction based time v.s. 1 minute through 1 day), and order flows (sign v.s. signed volume). The results show that order flow is an important variable for explaining the KRW/USD regardless of frequency and of choice of quotes. Based on Hasbrouck's measure we find that 14-28% of permanent exchange rate variation is due to private information. The magnitude is smaller than that of international currency presenting, for example, in Payne (2003). The discrepancy arises both from currency choice and from too short data span in Payne (2003).

JEL classification: F3, G12, G14

Keywords

Indicative Quote, KRW/USD, Market Microstructure, Order Flow

Language

Korean

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