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Informed Traders, Intervention, and Price Leadership: A Deeper View of the Microstructure of the Foreign Exchange Market
Author(s) -
PEIERS BETTINA
Publication year - 1997
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1997.tb01122.x
Subject(s) - granger causality , competitor analysis , foreign exchange market , intervention (counseling) , monetary economics , foreign exchange , central bank , economics , causality (physics) , exchange rate , business , financial economics , monetary policy , econometrics , management , psychology , physics , quantum mechanics , psychiatry
This article identifies price leadership patterns in foreign exchange trading, with a focus on central bank intervention as an informational trigger for leadership positioning. Granger causality tests applied to DM/US$ spot rate quotes reveal Deutsche Bank as a price leader up to 60 minutes prior to Bundesbank interventionary reports. By the minus 25‐minute mark, interbank quote adjustments become two‐way Granger‐causal. These results suggest that central bank activity is revealed in stages: first to the price leader, then to competitors, and lastly to the general public.