A Unifying Microstructure Framework for Modeling Intraday and Interday Asset Pricing Dynamics: the Case of Exchange Rates

Thierry Chauveau and Richard Topol

European Financial Management, 1999, vol. 5, issue 3, 341-368

Abstract: A model of the dynamics of intradaily exchange rates is presented. The current Over‐The‐Counter (OTC) exchange rate is the quote of the quoting bank.Two polar cases are considered: (i) If each bank is able to observe the noises relative to the orders of its own clients, then the OTC exchange rate is shown to obey a random walk with a constant conditional variance. (ii) If each bank is not able to observe the noises relative to the orders of its own clients, the OTC exchange rate is no more a random walk and conditional heteroskedasticity appears.

Date: 1999
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https://doi.org/10.1111/1468-036X.00099

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Persistent link: https://EconPapers.repec.org/RePEc:bla:eufman:v:5:y:1999:i:3:p:341-368

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