Foreign exchange customers and dealers: Who’s driving whom?

Nikola Gradojevic

Finance Research Letters, 2014, vol. 11, issue 3, 213-218

Abstract: This paper tests the theoretical assumption of the foreign exchange market microstructure that dealers and non-dealer customers interact over discrete trading rounds. An exhaustive frequency-domain analysis reveals that the interaction is limited and mainly due to the instability of financial markets. The principal finding is that the trading activity of dealers is able to predict the customer order flow at low frequencies with wavelengths longer than roughly a week. In all, the evidence shows that non-financial customers are not as passive as some other research has suggested.

Keywords: Foreign exchange market; Market microstructure; Order flow; Frequency-domain; Causality (search for similar items in EconPapers)
JEL-codes: C58 F31 G01 G15 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (1)

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Working Paper: Foreign exchange customers and dealers: Who’s driving whom? (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:11:y:2014:i:3:p:213-218

DOI: 10.1016/j.frl.2013.11.005

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