Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/22443
Authors: 
Menkhoff, Lukas
Schmeling, Maik
Year of Publication: 
2006
Series/Report no.: 
Diskussionspapiere des Fachbereichs Wirtschaftswissenschaften, Universität Hannover 331
Abstract: 
This study shows that order flow in a foreign exchange market only has permanent price impact if it comes from certain regions. These regions are – as predicted by the local information hypothesis – centers of political and financial decision making. It is revealing that orders from other regions only show a very short-lived but no permanent price impact. Local information is so important that it carries over from the usually considered market orders to aggressively-priced limit orders too. The finding is robust to various market conditions, common news shocks and consideration of feedback trading.
Subjects: 
Local information hypothesis
price impact
limit orders
informed traders
JEL: 
D82
F31
Document Type: 
Working Paper

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