Exchange Rate Fundamentals and Order Flow May , 2005

  title={Exchange Rate Fundamentals and Order Flow May , 2005},
  author={Martin D. D. Evans and Richard G. Lyons},
This paper addresses whether transaction ‡ows in foreign exchange markets convey information about fundamentals. We begin with a GE model in the spirit of Hayek (1945) in which fundamental information is …rst manifest in the economy at the micro level, i.e., in a way that is not symmetrically observed by all agents. With this information structure, induced foreign exchange transactions play a central role in the aggregation process, providing testable links between transaction ‡ows, exchange… CONTINUE READING
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