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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.

Suggested Citation

  • Andreas Fischer, 2004. "Price Clustering in the FX Market: A Disaggregate Analysis using Central Bank Interventions," Working Papers 04.04, Swiss National Bank, Study Center Gerzensee.
  • Handle: RePEc:szg:worpap:0404
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    References listed on IDEAS

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    1. Dominguez, Kathryn M., 1998. "Central bank intervention and exchange rate volatility1," Journal of International Money and Finance, Elsevier, vol. 17(1), pages 161-190, February.
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    3. Christopher J. Neely, 2001. "The practice of central bank intervention: looking under the hood," Review, Federal Reserve Bank of St. Louis, issue May, pages 1-10.
    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.
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    6. Fischer, Andreas M & Zurlinden, Mathias, 1999. "Exchange Rate Effects of Central Bank Interventions: An Analysis of Transaction Prices," Economic Journal, Royal Economic Society, vol. 109(458), pages 662-676, October.
    7. repec:rus:hseeco:21608 is not listed on IDEAS
    8. Payne, Richard & Vitale, Paolo, 2003. "A transaction level study of the effects of central bank intervention on exchange rates," Journal of International Economics, Elsevier, vol. 61(2), pages 331-352, December.
    9. Harris, Lawrence, 1991. "Stock Price Clustering and Discreteness," Review of Financial Studies, Society for Financial Studies, vol. 4(3), pages 389-415.
    10. Carol L. Osler, 2000. "Support for resistance: technical analysis and intraday exchange rates," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 53-68.
    11. Owen F. Humpage, 2003. "Government intervention in the foreign exchange market," Working Paper 0315, Federal Reserve Bank of Cleveland.
    12. Sopranzetti, Ben J. & Datar, Vinay, 2002. "Price clustering in foreign exchange spot markets," Journal of Financial Markets, Elsevier, vol. 5(4), pages 411-417, October.
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    Cited by:

    1. 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 35537, Southern Agricultural Economics Association.
    2. Pasquariello, Paolo, 2007. "Informative trading or just costly noise? An analysis of Central Bank interventions," Journal of Financial Markets, Elsevier, vol. 10(2), pages 107-143, May.
    3. Áron Gereben & György Gyomai & Norbert Kiss M., 2005. "The microstructure approach to exchange rates: a survey from a central bank’s viewpoint," MNB Occasional Papers 2005/42, Magyar Nemzeti Bank (Central Bank of Hungary).
    4. Pasquariello, Paolo, 2010. "Central bank intervention and the intraday process of price formation in the currency markets," Journal of International Money and Finance, Elsevier, vol. 29(6), pages 1045-1061, October.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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