This paper investigates the intraday effects of unannounced foreign exchange intervention on bid-ask exchange rate spreads using official intraday intervention data provided by the Danish central bank. Our starting point is a simple theoretical model of the bid-ask spread which we use to...

We investigate the relation between foreign exchange (FX) order flow and the forward bias. We outline a decomposition of the forward bias according to which a negative correlation between interest rate differentials and order flow creates a time-varying risk premium consistent with that bias....

This paper provides real-time evidence on the frequency, size and duration of arbitrage opportunities and deviations from the law of one price (LOP) in the foreign exchange market. We investigate deviations from the covered interest rate parity (CIP) condition ('round-trip arbitrage') and...

This paper investigates the validity of the law of one price (LOP) in international financial markets by examining the frequency, size and duration of inter-market price differentials for borrowing and lending services (`one-way arbitrage'). Using a unique data set for three major capital and...

Using ten years of FX transactions data we demonstrate that a large share of the FX forward discount bias can be accounted for by order flow. A simple microstructure-based decomposition suggests that order flow creates a timevarying risk premium that is correlated with the forward discount. The...

This paper analyzes alternative models for emerging sovereign ratings. Although a small number of economic fundamentals explain ratings reasonably well, variations in those economic fundamentals are themselves explained by a small number of world factors. On the other hand, global financial...

If rating agencies add no new information to markets, their actions are not a public policy concern. But as rating changes may be anticipated, testing whether ratings add value is not straightforward. This paper argues that ratings and spreads are both noisy signals of fundamentals and suggest...

This paper develops a liquidity measure tailored to the foreign exchange (FX) market, quanties the amount of commonality in liquidity across dierent exchange rates, and determines theextent of liquidity risk premiums embedded in FX returns. The new liquidity measure utilizesultra high frequency...

This paper is about contagion and interdependence among Central European economies. It investigates the extent to which country-specific shocks spread across these countries beyond the normal channels of interdependence, taking into account common external shocks. To model such shocks, we make...

Classical contributions in international macroeconomics rely on goods-market mechanisms to reconcile the cyclicality of real exchange rates when financial markets are incomplete. However, cross-border trade in one domestic and one foreign-currency-denominated risk-free asset prohibits these...