Informed Traders, Intervention and Price Leadership: A Deeper View of the Microstructure of the Foreign Exchange Market

J. OF FINANCE, Vol. 52 No. 4, September 1997

Posted: 20 Nov 1996  

Bettina Peters

Center for European Economic Research (ZEW)

Abstract

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

Suggested Citation

Peters, Bettina, Informed Traders, Intervention and Price Leadership: A Deeper View of the Microstructure of the Foreign Exchange Market. J. OF FINANCE, Vol. 52 No. 4, September 1997. Available at SSRN: https://ssrn.com/abstract=11134

Bettina Peters (Contact Author)

Center for European Economic Research (ZEW) ( email )

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L 7,1 D-68161 Mannheim
Germany
+496211235174 (Phone)
+496211235170 (Fax)

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