Price Clustering in the U.S. Dollar/Taiwan Dollar Swap Market

20 Pages Posted: 24 Jan 2013

See all articles by Hao‐Chen Liu

Hao‐Chen Liu

affiliation not provided to SSRN

Mark David Witte

College of Charleston

Date Written: February 2013

Abstract

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.

Keywords: price clustering, foreign exchange, swaps, market microstructure

JEL Classification: F31, G15

Suggested Citation

Liu, Hao‐Chen and Witte, Mark David David, Price Clustering in the U.S. Dollar/Taiwan Dollar Swap Market (February 2013). Financial Review, Vol. 48, Issue 1, pp. 77-96, 2013, Available at SSRN: https://ssrn.com/abstract=2206143 or http://dx.doi.org/10.1111/j.1540-6288.2012.00353.x

Hao‐Chen Liu (Contact Author)

affiliation not provided to SSRN

No Address Available

Mark David David Witte

College of Charleston ( email )

66 George Street
Charleston, SC 29424
United States

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