大阪大学　数理・データ科学教育研究センター
Center for Mathematical Modeling and Data Science,Osaka University

Liquidity, Volume and Informational Efficiency: Evidence from High-frequency FX data

岩壷　健太郎 (神戸大学経済学研究科)

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4. Liquidity, Volume and Informational Efficiency: Evidence from High-frequency FX data

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Liquidity, Volume and Informational Efficiency: Evidence from High-frequency FX data

岩壷　健太郎 (神戸大学経済学研究科)

This paper investigates the impacts of spreads and volume on informational efficiency in the Euro/Dollar and Yen/Dollar markets. Following Chordia et al. (2008), we exploit the short-run return predictability from lagged returns and order flows as an inverse indicator of informational efficiency. The relationship between the adverse selection component of bid-ask spreads and the efficiency measure is also analyzed to examine the endogeneity of spreads. Using the high-frequency Electronic Broking Services (EBS) data, we find that the effect of a bid-ask spread on efficiency is negative, while that of volume is positive. The decomposition of bid-ask spreads reveals that the adverse selection component is negatively related to efficiency, suggesting that informed traders generally submit limit orders and determine the bid-ask spreads. Therefore, the endogeneity does not seem to hinder our interpretation about the causality between spreads and efficiency. The evidence supports the transaction cost view of liquidity and the asymmetric information view of the volume-efficiency relationship.