IDEAS home Printed from https://ideas.repec.org/p/fth/socabu/99-56.html
   My bibliography  Save this paper

Price Discovery on Foreign Exchange Markets with Differentially Informed Traders

Author

Listed:
  • de Jong, F.
  • Mahieu, R.
  • Schotman, P.
  • Leeuwen, I.

Abstract

This paper uses Reuters exchange rate data to investigate the contributions to the price discovery process by individual banks in the foreign exchange market. We propose multivariate time series models as well as models in tick time to study the dynamic relations between the quotes of individual banks. We investigate the hypothesis that German banks are price leaders in the deutschmark/dollar market.

Suggested Citation

  • de Jong, F. & Mahieu, R. & Schotman, P. & Leeuwen, I., 1999. "Price Discovery on Foreign Exchange Markets with Differentially Informed Traders," Papers 99-56, Southern California - School of Business Administration.
    • Handle: RePEc:fth:socabu:99-56
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Glosten, Lawrence R. & Milgrom, Paul R., 1985. "Bid, ask and transaction prices in a specialist market with heterogeneously informed traders," Journal of Financial Economics, Elsevier, vol. 14(1), pages 71-100, March.
    2. Goodhart, Charles A. E. & Payne, Richard G., 1996. "Microstructural dynamics in a foreign exchange electronic broking system," Journal of International Money and Finance, Elsevier, vol. 15(6), pages 829-852, December.
    3. Lyons, Richard K., 1995. "Tests of microstructural hypotheses in the foreign exchange market," Journal of Financial Economics, Elsevier, vol. 39(2-3), pages 321-351.
    4. Hasbrouck, Joel, 1995. "One Security, Many Markets: Determining the Contributions to Price Discovery," Journal of Finance, American Finance Association, vol. 50(4), pages 1175-1199, September.
    5. repec:bla:jfinan:v:53:y:1998:i:3:p:1111-1130 is not listed on IDEAS
    6. repec:bla:econom:v:55:y:1988:i:220:p:437-60 is not listed on IDEAS
    7. Goodhart, Charles A. E. & O'Hara, Maureen, 1997. "High frequency data in financial markets: Issues and applications," Journal of Empirical Finance, Elsevier, vol. 4(2-3), pages 73-114, June.
    8. Peiers, Bettina, 1997. "Informed Traders, Intervention, and Price Leadership: A Deeper View of the Microstructure of the Foreign Exchange Market," Journal of Finance, American Finance Association, vol. 52(4), pages 1589-1614, September.
    9. Lyons, Richard K., 1997. "A simultaneous trade model of the foreign exchange hot potato," Journal of International Economics, Elsevier, vol. 42(3-4), pages 275-298, May.
    10. Huang, Roger D & Masulis, Ronald W, 1999. "FX Spreads and Dealer Competition across the 24-Hour Trading Day," The Review of Financial Studies, Society for Financial Studies, vol. 12(1), pages 61-93.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tsang, Kwok Ping & Yang, Zichao, 2021. "The market for bitcoin transactions," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 71(C).
    2. Calcagno, R. & Lovo, S.M., 2002. "Market Efficiency and Price Formation When Dealers are Asymmetrically Informed," Other publications TiSEM 30951a58-24f2-43f0-9e35-e, Tilburg University, School of Economics and Management.
    3. Sapp, Stephen G., 2002. "Price Leadership in the Spot Foreign Exchange Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 37(3), pages 425-448, September.
    4. Calcagno, R. & Lovo, S.M., 2002. "Market Efficiency and Price Formation When Dealers are Asymmetrically Informed," Discussion Paper 2002-42, Tilburg University, Center for Economic Research.
    5. LOVO, Stefano M. & CALCAGNO, R., 2001. "Market efficiency and Price Formation when Dealers are Asymmetrically Informed," HEC Research Papers Series 737, HEC Paris.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kate Phylaktis & Long Chen, 2010. "Asymmetric information, price discovery and macroeconomic announcements in FX market: do top trading banks know more?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 15(3), pages 228-246.
    2. Chelley-Steeley, Patricia L. & Tsorakidis, Nikos, 2013. "Bid-ask spread dynamics in foreign exchange markets," International Review of Financial Analysis, Elsevier, vol. 29(C), pages 119-131.
    3. de Jong, Frank & Mahieu, Ronald J & Schotman, Peter C, 1999. "Price Discovery on Foreign Exchange Markets," CEPR Discussion Papers 2296, C.E.P.R. Discussion Papers.
    4. Ledenyov, Dimitri O. & Ledenyov, Viktor O., 2015. "Wave function method to forecast foreign currencies exchange rates at ultra high frequency electronic trading in foreign currencies exchange markets," MPRA Paper 67470, University Library of Munich, Germany.
    5. Sapp, Stephen G., 2002. "Price Leadership in the Spot Foreign Exchange Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 37(3), pages 425-448, September.
    6. Phylaktis, Kate & Chen, Long, 2009. "Price discovery in foreign exchange markets: A comparison of indicative and actual transaction prices," Journal of Empirical Finance, Elsevier, vol. 16(4), pages 640-654, September.
    7. Pasquariello, Paolo, 2010. "Central bank intervention and the intraday process of price formation in the currency markets," Journal of International Money and Finance, Elsevier, vol. 29(6), pages 1045-1061, October.
    8. Richard K. Lyons, 2002. "Foreign exchange: macro puzzles, micro tools," Economic Review, Federal Reserve Bank of San Francisco, pages 51-69.
    9. King, Michael R. & Osler, Carol L. & Rime, Dagfinn, 2013. "The market microstructure approach to foreign exchange: Looking back and looking forward," Journal of International Money and Finance, Elsevier, vol. 38(C), pages 95-119.
    10. Martin D.D. Evans & Richard K. Lyons, 2017. "Order Flow and Exchange Rate Dynamics," World Scientific Book Chapters, in: Studies in Foreign Exchange Economics, chapter 6, pages 247-290, World Scientific Publishing Co. Pte. Ltd..
    11. Ranaldo, Angelo & Somogyi, Fabricius, 2021. "Asymmetric information risk in FX markets," Journal of Financial Economics, Elsevier, vol. 140(2), pages 391-411.
    12. Wang, Jian-Xin, 2001. "Quote revision and information flow among foreign exchange dealers," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 11(2), pages 115-136, June.
    13. Yuko Hashimoto & Takatoshi Ito & Takaaki Ohnishi & Misako Takayasu & Hideki Takayasu & Tsutomu Watanabe, 2012. "Random walk or a run. Market microstructure analysis of foreign exchange rate movements based on conditional probability," Quantitative Finance, Taylor & Francis Journals, vol. 12(6), pages 893-905, March.
    14. Ito, Takatoshi & Hashimoto, Yuko, 2006. "Intraday seasonality in activities of the foreign exchange markets: Evidence from the electronic broking system," Journal of the Japanese and International Economies, Elsevier, vol. 20(4), pages 637-664, December.
    15. Lee, Jieun & Ryu, Doojin, 2019. "How does FX liquidity affect the relationship between foreign ownership and stock liquidity?," Emerging Markets Review, Elsevier, vol. 39(C), pages 101-119.
    16. Ligon, James A. & Liu, Hao-Chen, 2013. "The relation of trade size and price contribution in a traditional foreign exchange brokered market," Pacific-Basin Finance Journal, Elsevier, vol. 21(1), pages 1024-1045.
    17. He, Yan & Lin, Hai & Wang, Junbo & Wu, Chunchi, 2009. "Price discovery in the round-the-clock U.S. Treasury market," Journal of Financial Intermediation, Elsevier, vol. 18(3), pages 464-490, July.
    18. Cheung, Yin-Wong & Wong, Clement Yuk-Pang, 2000. "A survey of market practitioners' views on exchange rate dynamics," Journal of International Economics, Elsevier, vol. 51(2), pages 401-419, August.
    19. Takatoshi Ito & Yuko Hashimoto, 2006. "Intra-day Seasonality in Activities of the Foreign Exchange Markets: Evidence from the Electronic Broking System (Subsequently published in "Journal of the Japanese and International Economies&qu," CARF F-Series CARF-F-064, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    20. Menkhoff, Lukas & Schmeling, Maik, 2010. "Trader see, trader do: How do (small) FX traders react to large counterparties' trades?," Journal of International Money and Finance, Elsevier, vol. 29(7), pages 1283-1302, November.

    More about this item

    Keywords

    EXCHANGE RATE ; ESTIMATOR ; REGRESSION ANALYSIS;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fth:socabu:99-56. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Thomas Krichel (email available below). General contact details of provider: https://edirc.repec.org/data/sbuscus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.