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Where Does Price Discovery Occur in FX Markets?

Chris D'Souza

Staff Working Papers from Bank of Canada

Abstract: Trades in foreign exchange markets are initiated around the world and around the clock. This study illustrates that trades are more informative when initiated in a local country or in major foreign exchange centers like London and New York. Evidence suggests that informational asymmetries based on geography arise from the market making capacity of dealers and the customer order flow that dealers capture during regional business hours. Findings also show that market orders initiated in price-correlated FX markets are not informative. Transparency in quotes on electronic trading platforms may prevent informed participants from exploiting information across FX markets. Overall, these results are robust across different market conditions.

Keywords: Market structure and pricing; Exchange rates; Financial markets (search for similar items in EconPapers)
JEL-codes: F31 G15 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2007
New Economics Papers: this item is included in nep-fmk, nep-ifn and nep-mst
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:07-52

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