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Forex trading and the WMR Fix

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  • Evans, Martin D.D.

Abstract

I examine the behavior of forex prices around the setting of the 4:00 pm WMR Fix. Numerous banks have been fined by regulators for their trading activities around the Fix, but the overall impact of their actions is not known. I first examine trading patterns around the Fix in a microstructure model of competitive trading. I then compare the model with the empirical behavior of forex prices across 21 currencies over a decade. Contrary to the predictions of the model, forex price changes display extraordinary volatility and negative serial correlation around the Fix.

Suggested Citation

  • Evans, Martin D.D., 2018. "Forex trading and the WMR Fix," Journal of Banking & Finance, Elsevier, vol. 87(C), pages 233-247.
    • Handle: RePEc:eee:jbfina:v:87:y:2018:i:c:p:233-247
    DOI: 10.1016/j.jbankfin.2017.09.017
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    References listed on IDEAS

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    Cited by:

    1. Julia Reynolds & Leopold Sögner & Martin Wagner, 2021. "Deviations from Triangular Arbitrage Parity in Foreign Exchange and Bitcoin Markets," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 13(2), pages 105-146, June.
    2. Martin D. D. Evans, 2019. "Front-Running and Collusion in Forex Trading," Working Papers gueconwpa~19-19-02, Georgetown University, Department of Economics.
    3. Evans, Martin, 2020. "Exchange Rates and Liquidity Risk," MPRA Paper 102702, University Library of Munich, Germany.
    4. Angelo Ranaldo & Paolo Santucci de Magistris, 2018. "Trading Volume, Illiquidity and Commonalities in FX Markets," Working Papers on Finance 1823, University of St. Gallen, School of Finance, revised Oct 2019.
    5. Ingomar Krohn & Philippe Mueller & Paul Whelan, 2021. "Foreign Exchange Fixings and Returns Around the Clock," Staff Working Papers 21-48, Bank of Canada.
    6. Nuria Boot & Timo Klein & Maarten Pieter Schinkel, 2017. "Collusive Benchmark Rates Fixing," Tinbergen Institute Discussion Papers 17-122/VII, Tinbergen Institute, revised 17 Apr 2019.
    7. Nuria Boot & Timo Klein & Maarten Pieter Schinkel, 2017. "Collusive Benchmark Rates Fixing," Discussion Papers of DIW Berlin 1715, DIW Berlin, German Institute for Economic Research.

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    More about this item

    Keywords

    Forex trading; Order flows; Forex Price Fixes; Microstructure Trading Models;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • G1 - Financial Economics - - General Financial Markets

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