Price Discovery on Foreign Exchange Markets with Differentially Informed Traders
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. Our empirical results suggest an important but not exclusive role for German banks in the price discovery process. There is also a group of banks, German and non-German, that lags behind the market and does not contribute to the price discovery process. In contrast to Peiers~(1997) we do not find evidence for stronger price leadership of Deutsche bank on days with suspected Bundesbank interventions in the foreign exchange market.
|exchange rates, highfrequency data, microstructure, moment estimators|
|Time-Series Models; Dynamic Quantile Regressions (jel C32), Foreign Exchange (jel F31)|
|Tinbergen Institute Discussion Paper Series|
de Jong, F.C.J.M, Mahieu, R.J, Schotman, P.C, & van Leeuwen, I.W. (1999). Price Discovery on Foreign Exchange Markets with Differentially Informed Traders (No. TI 99-032/2). Tinbergen Institute Discussion Paper Series. Retrieved from http://hdl.handle.net/1765/7724