TY  - JOUR
AU  - Ito,Takatoshi
AU  - Lyons,Richard K.
AU  - Melvin,Michael T.
TI  - Is There Private Information in the FX Market? The Tokyo Experiment
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5936
PY  - 1997
Y2  - February 1997
UR  - http://www.nber.org/papers/w5936
L1  - http://www.nber.org/papers/w5936.pdf
N1  - Author contact info:
Takatoshi Ito
Graduate School of Economics
University of Tokyo
7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033
JAPAN
Tel: 81-3-5841-5608
Fax: 81-3-5841-5521
E-Mail: tito@e.u-tokyo.ac.jp

Richard K. Lyons
460 Michigan Ave
Berkeley, CA 94707
Tel: 510-642-1059
Fax: 510-642-4700
E-Mail: lyons@haas.berkeley.edu

Michael Melvin
BlackRock
400 Howard St
San Francisco, CA 94105
Tel: 415 670 7635
E-Mail: michael.melvin@blackrock.com
AB  - It is a common view that private information in the foreign exchange market does not exist.  We provide evidence against this view.  The evidence comes from the introduction of trading in Tokyo over the lunch-hour.  Lunch return variance doubles with the introduction of trading, which cannot be due to public information since the flow of public information did not change with the trading rules.  Having eliminated public information as the cause, we exploit the volatility pattern over the whole day to discriminate between the two alternatives: private information and pricing errors.  Three key results support the predictions of private-information models.  First, the volatility U-shape flattens: greater revelation over lunch leaves a smaller share for the morning and afternoon.  Second, the U-shape tilts upward, an implication of information whose private value is transitory. Finally, the morning exhibits a clear U-shape when Tokyo closes over lunch, and it disappears when trading is introduced.
ER  -