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Price Discovery Across Geographic Locations in the Foreign Exchange Market

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Abstract

The ongoing process of price discovery in foreign exchange markets provides valuable information to certain market participants. Recent empirical findings suggest that aggregate measures of order flow convey information about the fundamental value of the exchange rate. Using a market microstructure approach, D'Souza reports on a two-year study of completed transactions within the Canadian and Australian exchange rate markets to examine the relationship between exchange rate returns and trades initiated in different locations. Based on the information content of the trades, he finds that geographic location and hours of operation are two of the factors driving informed interdealer trading.

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  • Chris D'Souza, 2008. "Price Discovery Across Geographic Locations in the Foreign Exchange Market," Bank of Canada Review, Bank of Canada, vol. 2008(Spring), pages 19-27.
    • Handle: RePEc:bca:bcarev:v:2008:y:2008:i:spring08:p:19-27
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    1. Ding, Liang & Hiltrop, Jonas, 2010. "The electronic trading systems and bid-ask spreads in the foreign exchange market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 20(4), pages 323-345, October.

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