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Price discovery in foreign exchange markets: A comparison of indicative and actual transaction prices

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  • Phylaktis, Kate
  • Chen, Long

Abstract

In this paper, we compare four months of Reuters EFX high frequency indicative data with D2000-1 inter-dealer transaction data for DEM/USD and GBP/USD. Contrary to previous studies, we find, using various information measures, that the matched tick-by-tick indicative data bear no qualitative difference from the transaction data, and have higher information content. Expanding the system to include order flow, due to its growing importance in exchange rate theory, we find that indicative data has a similar impact on order flow as transaction data. However, order flow has no impact on either price.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Empirical Finance.

Volume (Year): 16 (2009)
Issue (Month): 4 (September)
Pages: 640-654

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Handle: RePEc:eee:empfin:v:16:y:2009:i:4:p:640-654

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Web page: http://www.elsevier.com/locate/jempfin

Related research

Keywords: Exchange rates Foreign Exchange market microstructure High frequency data Order flow Indicative data;

References

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Citations

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Cited by:
  1. Rosa, Carlo, 2013. "The financial market effect of FOMC minutes," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 67-81.
  2. Ding, Liang & Hiltrop, Jonas, 2010. "The electronic trading systems and bid-ask spreads in the foreign exchange market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 20(4), pages 323-345, October.
  3. Kate Phylaktis & Long Chen, 2010. "Asymmetric information, price discovery and macroeconomic announcements in FX market: do top trading banks know more?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 15(3), pages 228-246.

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