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

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
Contact details of provider: Postal: Studienzentrum Gerzensee, Postfach 21, 3115 Gerzensee
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Order Information: Postal: Studienzentrum Gerzensee, Postfach 21, 3115 Gerzensee

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  1. Christopher J. Neely, 2000. "The practice of central bank intervention: looking under the hood," Working Papers 2000-028, Federal Reserve Bank of St. Louis.
  2. repec:rus:hseeco:21608 is not listed on IDEAS
  3. Priscilla Chiu, 2003. "Transparency versus constructive ambiguity in foreign exchange intervention," BIS Working Papers 144, Bank for International Settlements.
  4. Kathryn M. Dominguez, 1999. "The Market Microstructure of Central Bank Intervention," NBER Working Papers 7337, National Bureau of Economic Research, Inc.
  5. Richard Payne & Paolo Vitale, 2002. "A transaction level study of the effects of central bank intervention on exchange rates," LSE Research Online Documents on Economics 25040, London School of Economics and Political Science, LSE Library.
  6. 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.
  7. 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.
  8. Owen F. Humpage, 2003. "Government intervention in the foreign exchange market," Working Paper 0315, Federal Reserve Bank of Cleveland.
  9. Grossman, Sanford J, et al, 1997. "Clustering and Competition in Asset Markets," Journal of Law and Economics, University of Chicago Press, vol. 40(1), pages 23-60, April.
  10. 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.
  11. 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.
  12. 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 662-76, October.
  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, vol. 58(5), pages 1791-1820, October.
  14. Harris, Lawrence, 1991. "Stock Price Clustering and Discreteness," Review of Financial Studies, Society for Financial Studies, vol. 4(3), pages 389-415.
  15. Goodhart, C. A. E. & Figliuoli, L., 1991. "Every minute counts in financial markets," Journal of International Money and Finance, Elsevier, vol. 10(1), pages 23-52, March.
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