The Clustering of Bid/Ask Prices and the Spread in the Foreign Exchange Market

Riccardo Curcio and Charles Goodhart ()

FMG Discussion Papers from Financial Markets Group

Abstract: Following Lawrence Harris (1989b) study of price clustering in stock prices, we examine the smae phenomenon in the forex market. The pattern of clustering in the final digit of bid/ask prices depends on the desired degree of price resolution. The selection of spreads also involves clustering, but this is driven by a different behavioural pattern, consistent with the pure attraction hypothesis. The combination of the two patterns can explain the differing frequencies of final digits in the bids as compared with the asks.

Date: 1991-01
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