Price Discovery in Foreign Exchange Markets: A Comparison of Indicative and Actual Transaction Prices

1 Pages Posted: 12 Nov 2008

See all articles by Long Chen

Long Chen

City University London - Sir John Cass Business School

Kate Phylaktis

City University London - Sir John Cass Business School

Date Written: November 11, 2008

Abstract

In this paper, we compare four months of Reuters EFX high frequency indicative data with D2000-1 inter-dealer transaction data for DEM/USD and GBP/USD. Contrary to previous studies, we find, using various information measures, that the matched tick-by-tick indicative data bear no qualitative difference from the transaction data, and have higher information content. Expanding the system to include order flow, due to its growing importance in exchange rate theory, we find that indicative data has a similar impact on order flow as transaction data. However, order flow has no impact on either price.

Keywords: Exchange rates, Foreign Exchange market microstructure, High frequency data, Order flow, Indicative data

JEL Classification: F31, G15

Suggested Citation

Chen, Long and Phylaktis, Kate, Price Discovery in Foreign Exchange Markets: A Comparison of Indicative and Actual Transaction Prices (November 11, 2008). Available at SSRN: https://ssrn.com/abstract=1299674 or http://dx.doi.org/10.2139/ssrn.1299674

Long Chen

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Kate Phylaktis (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 20 70408735 (Phone)
+44 20 70408881 (Fax)

HOME PAGE: http://www.cass.city.ac.uk/faculty/k.phylaktis/

Register to save articles to
your library

Register

Paper statistics

Downloads
73
Abstract Views
526
rank
324,824
PlumX Metrics