Apropos information, this is from the press release for the July issue of the Economic Journal: >DON'T REGULATE THE CURRENCY MARKETS: THEIR VOLATILITY REFLECTS THE >PACE OF ARRIVAL OF NEW INFORMATION > >Should the foreign exchange (FX) markets be regulated because of >'excessive volatility' and massive trading volume unrelated to the >underlying trade in goods and other financial assets? Is FX trading >'self-generating' so that government-imposed restrictions or taxes >would help ensure that exchange rates are more closely related to >the 'fundamentals' that are supposed to determine exchange rates? > >New research by Michael Melvin and Xixi Yin, published in the latest >issue of the Economic Journal, provides evidence on this important >public policy issue by examining the link between the arrival of new >public information, the frequency of quoting FX prices and the >volatility of exchange rates. It indicates that both the number of >price revisions (quotes) and the volatility of exchange rate returns >for the yen and mark are functions of the rate of public information >or news hitting the market. In other words, FX trading is providing >the function it is meant to: adjusting prices and quantities in >response to new information in order to achieve an efficient >allocation of resources. Evidently some people see signal where others see noise. Doug
