Premium
Price Clustering in the U.S. Dollar/Taiwan Dollar Swap Market
Author(s) -
Liu HaoChen,
Witte Mark David
Publication year - 2013
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.2012.00353.x
Subject(s) - cluster analysis , market liquidity , swap (finance) , volatility clustering , liberian dollar , price discovery , business , foreign exchange swap , financial economics , database transaction , foreign exchange market , financial market , monetary economics , economics , volatility (finance) , currency , finance , computer science , futures contract , machine learning , autoregressive conditional heteroskedasticity , programming language
Price clustering in financial markets is pervasive. Using transaction‐level data from the world's largest financial market, this study is the first to examine price clustering behavior in the foreign exchange swap market. In addition to existing hypotheses, we investigate new determinants of price clustering including the expected return, contract liquidity, and trader's identity. The results support both negotiation and price resolution hypotheses. We find a positive effect from the level of expected return on price clustering. Markets with greater liquidity experience reduced clustering. Transactions involving domestic banks have less clustering suggesting an information advantage over foreign banks.