Price Discovery on Foreign Exchange Markets

CEPR Discussion Paper No. 2296

Posted: 18 May 2000

See all articles by Frank De Jong

Frank De Jong

Tilburg University - Department of Finance

Irma W. van Leeuwen

Maastricht University - Limburg Institute of Financial Economics (LIFE)

Peter C. Schotman

Maastricht University - Department of Finance

Date Written: November 1999

Abstract

This paper uses Reuters exchange rate data to investigate the contributions to the price discovery process by individual banks in the foreign exchange market. We propose multivariate time series models as well as models in tick time to study the dynamic relations between the quotes of individual banks. We investigate the hypothesis that German banks are price leaders in the deutschmark/dollar market. Our empirical results suggest an important but not exclusive role for German banks in the price discovery process. There is also a group of banks, German and non-German, that lags behind the market and does not contribute to the price discovery process. We do not find evidence for stronger price leadership of Deutsche Bank on days with suspected Bundesbank interventions in the foreign exchange market.

JEL Classification: C32, F31

Suggested Citation

De Jong, Frank and van Leeuwen, Irma W. and Schotman, Peter C., Price Discovery on Foreign Exchange Markets (November 1999). CEPR Discussion Paper No. 2296, Available at SSRN: https://ssrn.com/abstract=223078

Frank De Jong (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Irma W. Van Leeuwen

Maastricht University - Limburg Institute of Financial Economics (LIFE) ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

Peter C. Schotman

Maastricht University - Department of Finance ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands
+31 43 388 3862 (Phone)
+31 43 388 4875 (Fax)

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