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Title: Price Discovery on Foreign Exchange Markets

Author(s): Frank de Jong, Ronald J Mahieu and Peter C Schotman

Publication Date: November 1999

Keyword(s): Exchange Rates, High Frequency Data, Microstructure and Moment Estimators

Programme Area(s): Financial Economics

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. 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. We do not find evidence for stronger price leadership of Deutsche Bank on days with suspected Bundesbank interventions in the foreign exchange market.

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Bibliographic Reference

de Jong, F, Mahieu, R and Schotman, P. 1999. 'Price Discovery on Foreign Exchange Markets'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2296