The Information Content of Individual FX Dealers' Quoting Activity

We investigate the information content of dealers' quoting activity as measured by the frequency of price revisions in the Euro/Dollar foreign exchange market. We use the multivariate double autoregressive conditional Poisson model designed for time series of count data. We find that dealers react differently to the same news announcements, some dealers increasing their activity, whilst others decrease it in response to the same news. We attribute this to the heterogeneous interpretation of the news content by individual traders and to the significant influence of some dealers on others. We also find very significant interaction between dealers' quoting activity, which suggests that dealers monitor the quoting activity of others to infer their private information and their interpretation of public news announcements.