Informed Traders, Intervention and Price Leadership: A Deeper View of the Microstructure of the Foreign Exchange Market
Center for European Economic Research (ZEW)
J. OF FINANCE, Vol. 52 No. 4, September 1997
This paper 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.
JEL Classification: G14, G15, F31, E58
Date posted: November 20, 1996
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