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Asymmetric responses of ask and bid quotes to information in the foreign exchange market

Yu-Lun Chen and Yin-Feng Gau ()

Journal of Banking & Finance, 2014, vol. 38, issue C, 194-204

Abstract: We study the price discovery in a foreign exchange electronic limit order market on a daily basis, by examining the informativeness of ask and bid quotes in the process of price formation. Using the data of prices and trades in the Euro–Dollar spot market via Electronic Broking Services (EBS), we find bid quotes provide more price discovery. This dominance of bid quotes in price discovery is stronger on Monday and is weaker on Friday. Asymmetries in the responses of ask and bid quotes to trade-related information evolve with daily order flow, daily return, the interactive term between spread and order flow, and the volatility, skewness, and kurtosis in the distribution of efficient exchange rate changes.

Keywords: Price discovery; Information share; Common factor weight; Bid–ask spread; Order flow (search for similar items in EconPapers)
JEL-codes: F31 G15 (search for similar items in EconPapers)
Date: 2014
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Handle: RePEc:eee:jbfina:v:38:y:2014:i:c:p:194-204