'Once-in-a-generation' yen volatility in 1998: Fundamentals, intervention, and order flow

Jun CAI, Yan Leung CHEUNG, Raymond S. K. LEE, Michael MELVIN

Research output: Contribution to journalArticle

67 Citations (Scopus)


The dramatic yen/dollar volatility of 1998 has been popularly ascribed to order flow driven by changing tastes for risk and hedge-fund herding on unwinding yen 'carry trade' positions rather than fundamentals. High-frequency evidence of shifting fundamentals is provided by a comprehensive list of macroeconomic announcements. News is found to have significant effects on volatility, but order flow may play a more important role. Since portfolio shifts are revealed to the market through trading, the results are consistent with order flow playing a significant role in the revelation of private information and associated exchange rate shifts. Copyright © 2001 Elsevier Science Ltd.

Original languageEnglish
Pages (from-to)327-347
JournalJournal of International Money and Finance
Issue number3
Publication statusPublished - Jun 2001


Order flow
Macroeconomic announcements
Hedge funds
Carry trade
Exchange rates
Private information


Cai, J., Cheung, Y.-L., Lee, R. S. K., & Melvin, M. (2001). 'Once-in-a-generation' yen volatility in 1998: Fundamentals, intervention, and order flow. Journal of International Money and Finance, 20(3), 327-347.


  • Exchange rate volatility
  • Private information
  • Order flow
  • News announcements
  • Central bank intervention