Informed Traders, Intervention, and Price Leadership: A Deeper View of the Microstructure of the Foreign Exchange Market

Bettina Peiers

Journal of Finance, 1997, vol. 52, issue 4, 1589-1614

Abstract: This article identifies price leadership patterns in foreign exchange trading, with a focus on central bank intervention as an informational trigger for leadership positioning. Granger causality tests applied to DM/US$ spot rate quotes reveal Deutsche Bank as a price leader up to sixty minutes prior to Bundesbank interventionary reports. By the minus twenty-five-minute mark, interbank quote adjustments become two-way Granger-causal. These results suggest that central bank activity is revealed in stages: first to the price leader, then to competitors, and lastly to the general public. Copyright 1997 by American Finance Association.

Date: 1997
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