- Does Liquidity in the FX Market depend on Volatility?
- Economics Bulletin
- Volume | Issue number
- 6 | 10
- Pages (from-to)
- Number of pages
- Document type
- Faculty of Economics and Business (FEB)
- Amsterdam School of Economics Research Institute (ASE-RI)
- We re¿examine the relationship between exchange rates and order flow as proposed by
Evans and Lyons (2002). Compared to their linear specification, we find that the response of
exchange rates to order flow may depend on market historical volatility. If market historical
volatility is high, a given order seems to have a lower price impact than in calmer periods.
Overall, our simple threshold mechanism has the power to produce higher correlation
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