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This paper provides evidence that hedge funds are a critical source of private fundamental information in currency markets. The Author analyze the most disaggregated database of currency transactions to date, with ten different categories of market participants including six categories of end users. The analysis of the information content of individual trades indicates that only one category of end user has information, specifically hedge funds. Orders placed by institutional investors, broker-dealers, central banks and government agencies, large corporations, and middle-market corporations provide little information about upcoming returns. Orders of banks in every size category carry information, consistent with now-standard theory that banks gather information from observing customer trades.
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