Three key results support the predictions of private-information models. 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. Richard K. Lyons in The Microstructure of Foreign Exchange Markets , J. Frankel et al. This paper examines whether currency trading volume is informative, and under what circumstances.
Theory admits both possibilities, depending primarily on the posited information structure.
In the model, the wave of inventory-management trading among dealers following innovations in order flow generates an inverse relationship between intensity and information content.