Herding and the information content of trades in the Australian dollar market

Elsevier Inc
Publication Type:
Journal Article
Pacific-Basin Finance Journal, 2007, 15 (2), pp. 173 - 194
Issue Date:
Full metadata record
Files in This Item:
Filename Description SizeFormat
2010002340OK.pdf322.79 kBAdobe PDF
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
Please use this identifier to cite or link to this item: