Empirical properties of the foreign exchange interdealer market
AbstractUsing a new high frequency data set we provide a precise empirical study of the interdealer spot market. We check that the main stylized facts of financial time series also apply to the FX market: fat-tailed distribution of returns, aggregational normality and volatility clustering. We report two standard microstructure phenomena: microstructure noise effects in the signature plot and the Epps effect. We find an unusual shape for the average book and a bimodal spread distribution. We construct the order flow and analyse its main characteristics: volume, placement, arrival intensity and sign. Many quantities have been dramatically affected by the decrease of the tick size in March 2011. We argue that the coexistence of manual traders and algorithmic traders, who react differently to the new tick size, leads to a strong price clustering property in all types of orders, thus affecting price formation.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1307.5440.
Date of creation: Jul 2013
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-28 (All new papers)
- NEP-IFN-2013-07-28 (International Finance)
- NEP-MST-2013-07-28 (Market Microstructure)
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