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Price Leadership in the Spot Foreign Exchange Market

  • Sapp, Stephen G.
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    This study empirically investigates how new information is incorporated into intra-daily DM-$US quotes, and finds evidence that certain dealers consistently incorporate new information into their quotes before others and that their behavior is influenced by market conditions. In general, Chemical Bank's quotes are the first to contain new information. However, in the periods of uncertainty around central bank interventions, evidence suggests Deutsche Bank is the price leader and its quotes are influenced by information and inventory considerations.

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    File URL: http://journals.cambridge.org/abstract_S002210900000154X
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    Article provided by Cambridge University Press in its journal Journal of Financial and Quantitative Analysis.

    Volume (Year): 37 (2002)
    Issue (Month): 03 (September)
    Pages: 425-448

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    Handle: RePEc:cup:jfinqa:v:37:y:2002:i:03:p:425-448_00
    Contact details of provider: Postal: Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK
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    1. Li, Hongyi & Maddala, G. S., 1997. "Bootstrapping cointegrating regressions," Journal of Econometrics, Elsevier, vol. 80(2), pages 297-318, October.
    2. Naranjo, Andy & Nimalendran, M, 2000. "Government Intervention and Adverse Selection Costs in Foreign Exchange Markets," Review of Financial Studies, Society for Financial Studies, vol. 13(2), pages 453-77.
    3. Hasbrouck, Joel, 1991. "The Summary Informativeness of Stock Trades: An Econometric Analysis," Review of Financial Studies, Society for Financial Studies, vol. 4(3), pages 571-95.
    4. Dominguez, Kathryn M. E., 2003. "The market microstructure of central bank intervention," Journal of International Economics, Elsevier, vol. 59(1), pages 25-45, January.
    5. deB. Harris, Frederick H. & McInish, Thomas H. & Shoesmith, Gary L. & Wood, Robert A., 1995. "Cointegration, Error Correction, and Price Discovery on Informationally Linked Security Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(04), pages 563-579, December.
    6. Zhou, Bin, 1996. "High-Frequency Data and Volatility in Foreign-Exchange Rates," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(1), pages 45-52, January.
    7. Melvin, Michael & Yin, Xixi, 2000. "Public Information Arrival, Exchange Rate Volatility, and Quote Frequency," Economic Journal, Royal Economic Society, vol. 110(465), pages 644-61, July.
    8. Bollerslev, Tim & Melvin, Michael, 1994. "Bid--ask spreads and volatility in the foreign exchange market : An empirical analysis," Journal of International Economics, Elsevier, vol. 36(3-4), pages 355-372, May.
    9. de Jong, F. & Mahieu, R. & Schotman, P. & Leeuwen, I., 1999. "Price Discovery on Foreign Exchange Markets with Differentially Informed Traders," Papers 99-56, Southern California - School of Business Administration.
    10. Richard K. Lyons., 1993. "Tests of Microstructural Hypotheses in the Foreign Exchange Market," Research Program in Finance Working Papers RPF-230, University of California at Berkeley.
    11. Garbade, Kenneth D & Silber, William L, 1979. "Dominant and Satellite Markets: A Study of Dually-Traded Securities," The Review of Economics and Statistics, MIT Press, vol. 61(3), pages 455-60, August.
    12. Copeland, Thomas E & Friedman, Daniel, 1987. " The Effect of Sequential Information Arrival on Asset Prices: An Experimental Study," Journal of Finance, American Finance Association, vol. 42(3), pages 763-97, July.
    13. Wang, Jian-Xin, 2001. "Quote revision and information flow among foreign exchange dealers," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 11(2), pages 115-136, June.
    14. Lyons, Richard K., 1997. "A simultaneous trade model of the foreign exchange hot potato," Journal of International Economics, Elsevier, vol. 42(3-4), pages 275-298, May.
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