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on Market Microstructure |
| By: | Ohad Kadan; Asaf Manela |
| Abstract: | We show that under mild assumptions, the total value of information to informed traders in the market can be measured by the covariance between price changes and order flow. This covariance captures noise trader losses, which equal informed trader gains when market making is competitive. We estimate the value of information using high frequency data on US equities at about $3.5 million per year for the average stock. The aggregate value of information is about 0.04% of market cap, which is considerably lower than the 0.67% in fees investors pay each year searching for superior returns (French 2008). We discuss potential resolutions for these puzzling findings. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2605.11180 |
| By: | Cara Bordier; Lukas Frei; Simon Stalder |
| Abstract: | The US dollar (USD) is involved in 88% of global foreign exchange transactions, partly due to its role as a vehicle currency. Using high-frequency data from primary interdealer platforms, we develop a novel methodology to identify USD cross-trades. We show both theoretically and empirically that such trades can generate price fluctuations in USD exchange rates. Employing an instrumental variables approach, we find that increased cross-trading activity amplifies aggregate USD volatility. These results highlight a fundamental trade-off: while dollar dominance enhances market liquidity, it also increases the currency’s exposure to shocks originating in other currency pairs. |
| Keywords: | Dollar dominance, Volatility, Foreign exchange markets, High-frequency trading |
| JEL: | F31 G12 G14 G15 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:snb:snbwpa:2026-05 |