Overnight price discovery and the internationalization of a currency: The case of the Korean won

• The internationalization of a currency has many aspects and is hard to measure.
• I propose an aggregate measure based on the share of overnight price discovery.
• Korean won shows a strong uptrend in overnight price discovery in recent years.
• Daytime investors are learning more from overnight price movements.
• Evidence is consistent with greater internationalization of Korean won.

This paper proposes a measure for the level of internationalization of a currency. It is based on the relative share of price discovery, termed the information share, in overnight offshore markets. I show that the overnight offshore markets play an increasingly important role in determining the KRW/USD exchange rate. The information share of the overnight offshore markets has increased from less than 10% in 1999–2000 to above 50% in 2011–2012. The variations in the overnight information share are consistent with variations in overnight market efficiency and investor learning.