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Price Clustering in the FX Market: A Disaggregate Analysis using Central Bank Interventions

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Abstract

Price clustering is a well-documented regularity of foreign exchange transactions. In this paper, I present new empirical evidence of price clustering for central bank interventions. A feature of the price clustering in Swiss National Bank (SNB) transactions is market dependency. Evidence of clustering in the broker market is considerably smaller than in the dealer market. The empirical analysis for Swiss interventions uses a disaggregate approach to test the hypothesis whether intervention strategy matters. The most important determinants of price clustering are bank size and transaction volume. While the regression evidence for customer transactions is consistent with the effciency hypothesis, the clustering results for intervention trades are not influenced by the SNB’s intervention tactics.

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Paper provided by Swiss National Bank, Study Center Gerzensee in its series Working Papers with number 04.04.

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Length: 21 pages
Date of creation: Jun 2004
Date of revision:
Handle: RePEc:szg:worpap:0404

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  1. Dominguez, Kathryn M. E., 2003. "The market microstructure of central bank intervention," Journal of International Economics, Elsevier, Elsevier, vol. 59(1), pages 25-45, January.
  2. repec:rus:hseeco:21608 is not listed on IDEAS
  3. Christopher J. Neely, 2001. "The practice of central bank intervention: looking under the hood," Review, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, issue May, pages 1-10.
  4. Dominguez, Kathryn M., 1998. "Central bank intervention and exchange rate volatility1," Journal of International Money and Finance, Elsevier, Elsevier, vol. 17(1), pages 161-190, February.
  5. Payne, Richard & Vitale, Paolo, 2001. "A Transaction Level Study of the Effects of Central Bank Intervention of Exchange Rates," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3085, C.E.P.R. Discussion Papers.
  6. Owen F. Humpage, 2003. "Government intervention in the foreign exchange market," Working Paper, Federal Reserve Bank of Cleveland 0315, Federal Reserve Bank of Cleveland.
  7. Grossman, Sanford J, et al, 1997. "Clustering and Competition in Asset Markets," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 40(1), pages 23-60, April.
  8. Fischer, Andreas M & Zurlinden, Mathias, 1999. "Exchange Rate Effects of Central Bank Interventions: An Analysis of Transaction Prices," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 109(458), pages 662-76, October.
  9. Goodhart, C. A. E. & Figliuoli, L., 1991. "Every minute counts in financial markets," Journal of International Money and Finance, Elsevier, Elsevier, vol. 10(1), pages 23-52, March.
  10. Naranjo, Andy & Nimalendran, M, 2000. "Government Intervention and Adverse Selection Costs in Foreign Exchange Markets," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 13(2), pages 453-77.
  11. Sopranzetti, Ben J. & Datar, Vinay, 2002. "Price clustering in foreign exchange spot markets," Journal of Financial Markets, Elsevier, Elsevier, vol. 5(4), pages 411-417, October.
  12. Carol Osler, 2000. "Support for resistance: technical analysis and intraday exchange rates," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Jul, pages 53-68.
  13. Carol L. Osler, 2003. "Currency Orders and Exchange Rate Dynamics: An Explanation for the Predictive Success of Technical Analysis," Journal of Finance, American Finance Association, American Finance Association, vol. 58(5), pages 1791-1820, October.
  14. Priscilla Chiu, 2003. "Transparency versus constructive ambiguity in foreign exchange intervention," BIS Working Papers 144, Bank for International Settlements.
  15. Harris, Lawrence, 1991. "Stock Price Clustering and Discreteness," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 4(3), pages 389-415.
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Cited by:
  1. Pasquariello, Paolo, 2007. "Informative trading or just costly noise? An analysis of Central Bank interventions," Journal of Financial Markets, Elsevier, Elsevier, vol. 10(2), pages 107-143, May.
  2. Pasquariello, Paolo, 2010. "Central bank intervention and the intraday process of price formation in the currency markets," Journal of International Money and Finance, Elsevier, Elsevier, vol. 29(6), pages 1045-1061, October.
  3. Klumpp, Joni M. & Brorsen, B. Wade & Anderson, Kim B., 2005. "The Preference for Round Number Prices," 2005 Annual Meeting, February 5-9, 2005, Little Rock, Arkansas, Southern Agricultural Economics Association 35537, Southern Agricultural Economics Association.

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