Hostname: page-component-586b7cd67f-rdxmf Total loading time: 0 Render date: 2024-11-26T12:55:06.615Z Has data issue: false hasContentIssue false
  • English
  • Français

Price Leadership in the Spot Foreign Exchange Market

Published online by Cambridge University Press:  06 April 2009

Stephen G. Sapp
Stephen G. Sapp
Affiliation:
[email protected], Richard Ivey School of Business, University of Western Ontario, London, Ontario N6A 3K7, Canada.
Get access Rights & Permissions [Opens in a new window]

Abstract

This study empirically investigates how new information is incorporated into intra-daily DM-$US quotes, and finds evidence that certain dealers consistently incorporate new information into their quotes before others and that their behavior is influenced by market conditions. In general, Chemical Bank's quotes are the first to contain new information. However, in the periods of uncertainty around central bank interventions, evidence suggests Deutsche Bank is the price leader and its quotes are influenced by information and inventory considerations.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 37 , Issue 3 , September 2002 , pp. 425 - 448
Copyright
Copyright © School of Business Administration, University of Washington 2002

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Andersen, T., and Bollerslev, T.. “DM–Dollar Volatility: Intraday Activity Patterns, Macroeconomic Announcements, and Longer Run Dependencies.” Journal of Finance, 53 (1998), 219–265.CrossRefGoogle Scholar
Andersen, T.; Bollerslev, T.; and Das, A.. “Variance-ratio Statistics and High-Frequency Data: Testing for Changes in Intraday Volatility Patterns.” Journal of Finance, 56 (2001), 305–327.CrossRefGoogle Scholar
Bank for International Settlements. Central Bank Survey of Foreign Exchange and Derivatives Market Activity 1995 (1996).Google Scholar
Bollerslev, T., and Domowitz, I.. “Trading Patterns and Prices in the Interbank Foreign Exchange Market.” Journal of Finance, 48 (1993), 1421–1443.CrossRefGoogle Scholar
Bollerslev, T., and Melvin, M.. “Bid–Ask Spreads and Volatility in the Foreign Exchange Market: An Empirical Analysis.” Journal of International Economics, 36 (1994), 355–372.Google Scholar
Bolton, G. “A Comparative Model of Bargaining: Theory and Evidence.” American Economic Review, 81 (1991), 1096–1136.Google Scholar
Bundesbank, . “Internationale Organisationen und Germien im Beriech von Waehrung und Wirtschaft.” Sonderdrucke der Deutschen Bundesbank Nr. 3, 4. Auflage (1992).Google Scholar
Copeland, T., and Friedman, D.. “The Effect of Sequential Information Arrival on Asset Prices: An Experimental Study.” Journal of Finance, 42 (1987), 763–797.Google Scholar
Copeland, T., and Friedman, D.. “Partial Revelation of Information in Experimental Asset Markets.” Journal of Finance, 46 (1991), 265–295.CrossRefGoogle Scholar
Corsi, F.; Zumbach, G.; Mueller, U.; and Dacrogna, M.. “Consistent High-Precision Volatility from High-Frequency Data.” Olsen and Associates Discussion Paper (2001).Google Scholar
Covrig, V., and Melvin, M.. “Asymmetric Information and Price Discovery in the FX Market: Does Tokyo Know More about the Yen?” Working Paper, Arizona State Univ. (1998).Google Scholar
Dacrogna, M. M.; Gencay, R.; Mueller, U.; Olsen, R. B.; and Pictet, O. V.. An Introduction to High-Frequency Finance. New York, NY: Academic Press (2001).Google Scholar
de Jong, F.; Mahieu, R.; Schotman, P.; and van Leeuwen, I.. “Price Discovery in the Foreign Exchange Markets with Differentially Informed Traders.” Tinbergen Institute Discussion Paper 99–032/2 (1999).Google Scholar
Dominguez, K. “The Market Microstructure of Central Bank Intervention.” NBER Working Paper 7337 (1999).CrossRefGoogle Scholar
Edison, H. The Effectiveness of Central Bank Intervention: A Survey of the Literature after 1982. Special Papers in International Economics, Princeton Univ., No. 18 (1993).Google Scholar
Efron, B., and Tibshirani, R.. “Bootstrap Methods for Standard Errors, Confidence Intervals and Other Measures of Statistical Accuracy.” Statistical Science, 1 (1986), 54–77.Google Scholar
Frankel, J., and Rose, A.. “A Survey of Empirical Research on Nominal Exchange Rates.” In Handbook of International Economics Vol. III, Grossman, G. and Rogoff, K., eds. Amsterdam: Elsevier Science (1995).Google Scholar
Garbade, K. D., and Silber, W. L.. “Dominant and Satellite Markets: A Study of Dually Traded Securities.” Review of Economics and Statistics, 61 (1979), 455–460.CrossRefGoogle Scholar
Goodhart, C. “The Foreign Exchange Market: A Random Walk with a Dragging Anchor.” Economica, 55 (1988), 236–260.Google Scholar
Goodhart, C., and Hesse, T.. “Central Bank Forex Intervention Assessed in Continuous Time.” Journal of International Money and Finance, 12 (1993), 368–389.Google Scholar
Goodhart, C.; Ito, T.; and Payne, R.. “One Day in June 1993: A Study of the Working of the Reuters 2000–2.” In The Microstructure of Foreign Exchange Markets, Frankel, J. A., Galli, G., and Giovannini, A., eds. Chicago, IL: Univ. of Chicago Press (1996).Google Scholar
Goodhart, C., and O'Hara, M.. “High Frequency Data in Financial Markets: Issues and Applications.” Journal of Empirical Finance, 4 (1997), 73–114.CrossRefGoogle Scholar
Guillaume, D.; Dacrogna, M.; Dave, R.; Mueller, U.; Olsen, R.; and Pictet, O.. “From the Bird's Eye to the Microscope: A Survey of New Stylized Facts of the Intra-Daily Foreign Exchange Markets.” Finance and Stochastics, 1 (1997), 95–129.Google Scholar
Harris, F. H. deB; McInish, T. H.; Shoesmith, G. L.; and Wood, R. A.. “Cointegration, Error Correction and Price Discovery on Informationally Linked Security Markets.” Journal of Financial and Quantitative Analysis, 30 (1995), 563–579.Google Scholar
Hasbrouck, J. “The Summary of Informativeness of Stock Trades: An Econometric Analysis.” Review of Financial Studies, 4 (1991), 571–595.CrossRefGoogle Scholar
Hasbrouck, J. “One Security, Many Markets: Determining the Contributions to Price Discovery.” Journal of Finance, 50 (1995), 1175–1199.CrossRefGoogle Scholar
Hasbrouck, J. “Modeling Microstructure Time Series.” In Statistical Methods in Finance: Handbook of Statistics Volume 14, Maddala, G. S. and Rao, C. R., eds. (1996).Google Scholar
Hoffman, E. “Thirty Years in Central Banking.” Group of Thirty Occasional Papers No. 48 (1994).Google Scholar
Hsieh, D. A., and Kleidon, A.. “Bid-Ask Spreads in Foreign Exchange Markets Implications for Models of Asymmetric Information.” In The Microstructure of Foreign Exchange Markets, Frankel, J., Galli, G., and Giovanni, A., eds. Chicago, IL: Univ. of Chicago Press (1996).Google Scholar
Ito, T.; Lyons, R.; and Melvin, M.. “Is There Private Information in the FX Market? The Tokyo Experiment.” Journal of Finance, 53 (1998), 1111–1130.CrossRefGoogle Scholar
Johansen, S. “Statistical Analysis of Cointegration Vectors.” Journal of Economic Dynamics and Control, 12 (1988), 231–255.CrossRefGoogle Scholar
Johansen, S. “Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregression Models.” Econometrica, 59 (1991), 1551–1580.CrossRefGoogle Scholar
Judge, G. G; Griffiths, W. E.; Hill, R. C.; Luetkepohl, H.; and Lee, T.-C.. The Theory and Practice of Econometrics, 2nd ed.New York, NY: John Wiley and Sons (1985).Google Scholar
Kuensch, H. R. “The Jackknife and the Bootstrap for General Stationary Observations.” The Annals of Statistics, 17 (1989), 1217–1241.Google Scholar
Li, H., and Maddala, G. S.. “Bootstrapping Cointegrating Regressions.” Journal of Econometrics, 80 (1997), 297–318.CrossRefGoogle Scholar
Lyons, R. “Tests of Microstructural Hypotheses in the Foreign Exchange Market.” Journal of Financial Economics, 39 (1995), 321–351.CrossRefGoogle Scholar
Lyons, R. “A Simultaneous Trade Model of the Foreign Exchange Hot Potato.” Journal of International Economics, 42 (1997), 275–298.Google Scholar
Lyons, R.The Microstructure Approach to Exchange Rates. Cambridge, MA: MIT Press (2001).CrossRefGoogle Scholar
Madhavan, A. “Market Microstructure: A Survey.” Journal of Financial Markets, 3 (2000), 205–258.CrossRefGoogle Scholar
Melvin, M.International Money and Finance, 5th ed.Reading, MA: Addison-Wesley (1997).Google Scholar
Melvin, M., and Yin, X.. “Public Information Arrival, Exchange Rate Volatility and Quote Frequency.” Economic Journal, 110 (2000), 644–661.CrossRefGoogle Scholar
Naranjo, A., and Nimalendran, M.. “Government Intervention and Adverse Selection Costs in Foreign Exchange Markets.” Review of Financial Studies, 13 (2000), 453–477.Google Scholar
O'Hara, M.Market Microstructure Theory. Cambridge, MA: Blackwell Publishers (1995).Google Scholar
Peiers, B. “Informed Traders, Intervention and Price Leadership: A Deeper View of the Microstructure of the Foreign Exchange Market.” Journal of Finance, 52 (1997), 1589–1614.CrossRefGoogle Scholar
Politis, D. N., and Romano, J. P.. “The Stationary Bootstrap.” Journal of the American Statistical Association, 89 (1994), 1303–1313.Google Scholar
Stock, J. H., and Watson, M. W.. “Testing for Common Trends.” Journal of the American Statistical Association, 83 (1988), 1097–1107.CrossRefGoogle Scholar
Wang, J.-X. “Quote Revision and Information Flow among Foreign Exchange Dealers.” Journal of International Financial Markets, Institutions & Money, 11 (2001), 115–136.CrossRefGoogle Scholar
Yao, J. “Market Making in the Interbank Foreign Exchange Market.” Salomon Center for the Study of Financial Institutions Working Paper S-98-3, New York, NY (1998).Google Scholar
Zhou, B. “High-Frequency Data and Volatility in Foreign-Exchange Rates.” Journal of Business Economics and Statistic, 14 (1996), 45–52.Google Scholar