News and Intraday Retail Investor Order Flow in Foreign Exchange Markets

47 Pages Posted: 4 Mar 2021

See all articles by Filia Kaourma

Filia Kaourma

University of Cyprus - Department of Accounting and Finance

Andreas Milidonis

University of Cyprus - Department of Accounting and Finance

George Nishiotis

University of Cyprus-Faculty of Economics and Management-Department of Accounting and Finance

Marios A. Panayides

University of Cyprus - Department of Accounting and Finance; University of Pittsburgh - Katz Graduate School of Business

Date Written: March 3, 2021

Abstract

This paper examines the trading behavior of individual investors using a proprietary intraday dataset of a large pool of retail investor aggregate (minute by minute) long and short positions in EUR/USD for the period July 2014 to April 2016. Standard event study analysis shows no significant adjustment in trading ahead of scheduled macro news announcements and trading contrary to the announcement surprise after the event. A panel regression analysis shows that the contrarian trading behavior is mostly driven by lagged returns rather than fundamental macro news. Further intraday time series analysis shows that the lagged overall news sentiment also significantly affects investor net order flow. Finally, we show that simple cross-over trading strategies that exploit retail investor order flow imbalance are profitable. Overall our results suggest that retail investors in currency markets follow the news and are influenced by news sentiment and past returns, but do not possess the skills to extract fundamental information from public news. Their trading behavior contributes to the slowdown of the price discovery process. Our findings support the differential abilities of market participants to interpret public information as an explanation for the importance of order flow in price formation in currency markets.

Keywords: Foreign Exchange, Behavioral Finance, Retail Investors, Order Flow, TRMI, News

JEL Classification: F31, G12, G14

Suggested Citation

Kaourma, Filia and Milidonis, Andreas and Nishiotis, George P. and Panayides, Marios A., News and Intraday Retail Investor Order Flow in Foreign Exchange Markets (March 3, 2021). Available at SSRN: https://ssrn.com/abstract=3796753 or http://dx.doi.org/10.2139/ssrn.3796753

Filia Kaourma

University of Cyprus - Department of Accounting and Finance ( email )

Cyprus

Andreas Milidonis

University of Cyprus - Department of Accounting and Finance ( email )

P.O. Box 20537
Nicosia CY-1678
Cyprus
+357 22 893 626 (Phone)

HOME PAGE: http://www.ucy.ac.cy/~amilidon/

George P. Nishiotis (Contact Author)

University of Cyprus-Faculty of Economics and Management-Department of Accounting and Finance ( email )

Cyprus

Marios A. Panayides

University of Cyprus - Department of Accounting and Finance ( email )

University of Cyprus
P.O. Box 20537
Nicosia, CY-1678
Cyprus

University of Pittsburgh - Katz Graduate School of Business ( email )

372 Mervis Hall
Pittsburgh, PA 15260
United States

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