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Informed Traders, Intervention, and Price Leadership: A Deeper View of the Microstructure of the Foreign Exchange Market

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Author Info
 Peiers, Bettina
Abstract

This article identifies price leadership patterns in foreign exchange trading, with a focus on central bank intervention as an informational trigger for leadership positioning. Granger causality tests applied to DM/US$ spot rate quotes reveal Deutsche Bank as a price leader up to sixty minutes prior to Bundesbank interventionary reports. By the minus twenty-five-minute mark, interbank quote adjustments become two-way Granger-causal. These results suggest that central bank activity is revealed in stages: first to the price leader, then to competitors, and lastly to the general public. Copyright 1997 by American Finance Association.

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Publisher Info
Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 52 (1997)
Issue (Month): 4 (September)
Pages: 1589-1614
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Handle: RePEc:bla:jfinan:v:52:y:1997:i:4:p:1589-1614

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  1. Rasmus Fatum & Jesper Pedersen, 2007. "Real-Time Effects of Central Bank Interventions in the Euro Market," EPRU Working Paper Series 07-01, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics. [Downloadable!]
  2. Martin D. D. Evans(Georgetown University and NBER), . "What are the Origins of Foreign Exchange Movements?," Working Papers gueconwpa~05-05-06, Georgetown University, Department of Economics. [Downloadable!]
  3. Reitz, Stefan & Taylor, Mark P., 2006. "The coordination channel of foreign exchange intervention: a nonlinear microstructural analysis," Discussion Paper Series 1: Economic Studies 2006,08, Deutsche Bundesbank, Research Centre. [Downloadable!]
    Other versions:
  4. Lukas Menkhoff, 2008. "High-Frequency Analysis of Foreign Exchange Interventions: What do we learn?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  5. Ben Craig & Owen Humpage, 2001. "Sterilized intervention, nonsterilized intervention, and monetary policy," Working Paper 0110, Federal Reserve Bank of Cleveland. [Downloadable!]
  6. Pierre L. Siklos & Diana N. Weymark, 2006. "Measuring the Impact of Intervention on Exchange Market Pressure," Working Papers 0604, Department of Economics, Vanderbilt University. [Downloadable!]
    Other versions:
  7. Christopher Neely & Paul Weller, 2000. "Technical analysis and central bank intervention," Working Papers 1997-002, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
  8. Jongen, Ron & Verschoor, Willem F C & Wolff, Christian C & Zwinkels, Remco C.J., 2008. "Dispersion of Beliefs in the Foreign Exchange Market," CEPR Discussion Papers 6738, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  9. BEN OMRANE, Walid & HEINEN, AndrŽas, 2003. "The response of individual FX dealers'quoting activity to macroeconomic news announcements," CORE Discussion Papers 2003070, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
  10. Menkhoff, Lukas & Schmeling, Maik, 2009. "Trader see, trader do: How do (small) FX traders react to large counterparties' trades?," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Universität Hannover dp-415, Universität Hannover, Wirtschaftswissenschaftliche Fakultät. [Downloadable!]
  11. Torben G. Anderson & Tim Bollerslev & Ashish Das, 1998. "Testing for Market Microstructure Effects in Intraday Volatility: A Reassessment of the Tokyo FX Experiment," NBER Working Papers 6666, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Lemmens, A. & Croux, C. & Dekimpe, M.G., 2004. "Decomposing Granger Causality over the Spectrum," Research Paper ERS-2004-102-MKT Revision, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni. [Downloadable!]
  13. Mario Cerrato & Nicholas Sarantis & Alex Saunders, 2009. "An investigation of customer order flow in the foreign exchange market," Working Papers 2009_25, Department of Economics, University of Glasgow. [Downloadable!]
  14. Antonio Scalia, 2006. "Is foreign exchange intervention effective? Some micro-analytical evidence from the Czech Republic," Temi di discussione (Economic working papers) 579, Bank of Italy, Economic Research Department. [Downloadable!]
  15. Neil, Beattie & Fillion, Jean-François, 1999. "An Intraday Analysis of the Effectiveness of Foreign Exchange Intervention," Working Papers 99-4, Bank of Canada. [Downloadable!]
  16. Kathryn M. Dominguez, 1999. "The Market Microstructure of Central Bank Intervention," NBER Working Papers 7337, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  17. Andreas Fischer, 2003. "Reuters News Reports versus Official Interventions: A Cautionary Warning," Working Papers 03.06, Swiss National Bank, Study Center Gerzensee. [Downloadable!]
  18. Calcagno, R. & Lovo, S.M., 2002. "Market efficiency and price formation when dealers are asymmetrically informed," Discussion Paper 42, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  19. Stefan Reitz & M.P Taylor, 2006. "The Coordination Channel of Foreign Exchange Intervention," Computing in Economics and Finance 2006 16, Society for Computational Economics. [Downloadable!]
  20. Yushi Yoshida & Jan C. Rülke, 2009. "On-Going versus Completed Interventions and Yen/Dollar Expectations - Evidence from Disaggregated Survey Data," Discussion Papers 35, Kyushu Sangyo University, Faculty of Economics. [Downloadable!]
  21. Jonathan Kearns & Roberto Rigobon, 2003. "Identifying the Efficacy of Central Bank Interventions: Evidence from Australia," RBA Research Discussion Papers rdp2003-04, Reserve Bank of Australia. [Downloadable!]
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