Price Discovery on Foreign Exchange Markets

Frank de Jong, Ronald Mahieu and Peter C Schotman

No 2296, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper uses Reuters exchange rate data to investigate the contributions to the price discovery process by individual banks in the foreign exchange market. We propose multivariate time series models as well as models in tick time to study the dynamic relations between the quotes of individual banks. We investigate the hypothesis that German banks are price leaders in the deutschmark/dollar market. Our empirical results suggest an important but not exclusive role for German banks in the price discovery process. There is also a group of banks, German and non-German, that lags behind the market and does not contribute to the price discovery process. We do not find evidence for stronger price leadership of Deutsche Bank on days with suspected Bundesbank interventions in the foreign exchange market.

Keywords: Exchange Rates; High Frequency Data; Microstructure; Moment Estimators (search for similar items in EconPapers)
JEL-codes: C32 F31 (search for similar items in EconPapers)
Date: 1999-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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