Abstract
Using the high-frequency exchange rates of 25 global currency pairs, we document a striking clock-time periodicity in which trading activity surges at the beginning of a minute. Additional analyses indicate that clock-time spikes are accompanied by a lower level of liquidity. Moreover, we find that time-clustering trades yield permanent price impacts, are devoted to efficient pricing, and make a significant contribution to price discovery. Finally, we investigate three informed scenarios to ascertain how trades at spikes acquire information beforehand and reflect them in markets. Taken together, our findings reinforce the view in the literature that subminute periodicity emanates from algorithmic trading.
| Original language | English |
|---|---|
| Pages (from-to) | 445-465 |
| Number of pages | 21 |
| Journal | Journal of Financial Research |
| Volume | 45 |
| Issue number | 2 |
| Early online date | 13 Apr 2022 |
| DOIs | |
| Publication status | Published - 1 Jun 2022 |
| Externally published | Yes |
Bibliographical note
Publisher Copyright:© 2022 The Southern Finance Association and the Southwestern Finance Association.
Funding
We acknowledge the helpful comments from an anonymous reviewer. Chen acknowledges financial support from the Multi‐Year Research Grant (MYRG2020‐00042‐FBA) at the University of Macau. The usual caveats apply.
Keywords
- clock-time periodicity
- Foreign exchange markets
- Price discovery