Asymmetric Information and the Foreign-Exchange Trades of Global Custody Banks

Carol Osler, Thang Nguyen and Tanseli Savaser
Additional contact information
Thang Nguyen: Brandeis International Business School, http://www.brandeis.edu/global
Tanseli Savaser: Williams College, http://econ.williams.edu

No 2011-09, Department of Economics Working Papers from Department of Economics, Williams College

Abstract: This paper provides the first rigorous empirical analysis of markups on custodial foreign exchange trades. It finds that they substantially exceed relevant benchmarks such as interbank half-spreads. We trace this to an information asymmetry -- custodial bank dealers know more about their prices and bid-ask spreads than their client funds. We also examine the asset managers' continued heavy reliance on this high-cost approach to trading when alternatives are available with lower markups. We provide evidence that this choice does not reflect ignorance of the cost differential. Analysis relies on the complete foreign exchange trading record of a mid-sized global custody bank during calendar year 2006.

Pages: 35 pages
Date: 2011-06
New Economics Papers: this item is included in nep-acc, nep-iue, nep-lab and nep-pub
References: Add references at CitEc
Citations:

Downloads: (external link)
https://web.williams.edu/Economics/wp/Savaser_Custody_Banks.pdf Full text (application/pdf)

Related works:
Working Paper: Asymetric Information and the Foreign-Exchange Trades of Global Custody Banks (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wil:wileco:2011-09

Ordering information: This working paper can be ordered from

The price is Free.

Access Statistics for this paper

More papers in Department of Economics Working Papers from Department of Economics, Williams College Williamstown, MA 01267. Contact information at EDIRC.
Bibliographic data for series maintained by Greg Phelan ().