Informational linkages across trading regions: Evidence from foreign exchange markets

Using a new high-frequency data set from Electronic Broking Services (EBS), this paper examines informational linkages in the euro–dollar and dollar–yen exchange rates across five trading regions: Asia Pacific, the Asia–Europe overlap, Europe, the Europe–America overlap, and America. Information is proxied by exchange rate return, direction of return, volatility, trading activity, and order flow. We find that informational linkages are statistically significant at both own-region and inter-region levels, but own-region spillovers dominate in economic significance, especially for volatility and trading activity. In addition, order flow spillovers from the Europe–America overlap trading region are the most important source of spillovers to other trading regions for both currency pairs.