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Global price discovery in the Australian dollar market and its determinants

Fei Su and Jingjing Zhang

Pacific-Basin Finance Journal, 2018, vol. 48, issue C, 35-55

Abstract: With Australia's growing importance in the global economy, the Australian dollar (AUD) has started to play a significant role in the global Foreign Exchange (FX) market. Using intraday trading data over the period of January 1999 to December 2013, we examine the determinants of price discovery in the AUD markets at two different time horizons. We find that the short-run determinants of price discovery include macroeconomic news, order flows and market state variables (i.e., return, volatility, trading volume and bid/ask spread). After controlling for the cross-region information flow and dynamic self-dependence, we find that more favorable market states and more unexpected order flows on macroeconomic news announcement days make a significant contribution to price discovery in the AUD market. Furthermore, we found that a higher level of market integration and consolidation contributes to price discovery process in the long-run.

Keywords: Price discovery; Foreign exchange market; Information share; Macroeconomic news; Market integration and consolidation (search for similar items in EconPapers)
JEL-codes: G14 G13 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:pacfin:v:48:y:2018:i:c:p:35-55