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on Market Microstructure |
| By: | Evans, Martin |
| Abstract: | Since 2013 regulators have been investigating the activities of some of the world’s largest banks around the setting of daily benchmarks for forex prices. These benchmarks are a key linchpin of world financial markets, providing standardize prices used to value global equity and bond portfolios, to hedge currency exposure, and to write and execute derivatives’ contracts. The most important of these benchmarks, called the “London 4pm Fixâ€, “the WMR Fix†or just the “Fixâ€, is published by the WM Company and Reuters based on forex trading around 4:00 pm GMT. This paper undertakes a detailed empirical analysis of the how forex rates behave around the Fix drawing on a decade of tick-by-tick data for 21 currency pairs. The analysis reveals that the behavior of spot rates in the minutes immediately before and after 4:00 pm are quite unlike that observed at other times. Pre- and post-Fix changes in spot rates are extraordinarily volatile and exhibit strong negative serial correlation, particularly on the last trading day of each month. These statistical features appear pervasive, they are present across all 21 currency pairs throughout the decade. However, they are also inconsistent with the predictions of existing microstructure models of competitive forex trading. |
| Keywords: | Forex Trading, Order Flows, Forex Price Fixes, Microstructure Trading Models |
| JEL: | F3 F31 F4 G1 |
| Date: | 2014–08–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:58151&r=mst |
| By: | Miguel Fuentes; Pablo Pincheira; Juan Manuel Julio; Hernán Rincón; Santiago García-Verdú; Miguel Zerecero; Marco Vega; Erick Lahura; Ramon Moreno |
| Abstract: | This paper analyses the effects of sterilised, intraday foreign exchange market operations (non-discretionary and discretionary) on foreign exchange returns and volatility in four inflation targeting economies in Latin America. The distribution of exchange rates during intervention and non-intervention days are first compared, and then event study regressions are used to estimate the impact of intervention (and macro surprises) on exchange rate returns and exchange rate volatility as well as on foreign exchange market turnover (in Colombia). In general, the results suggest that the impact of both non-discretionary and discretionary operations is at times significant but transitory. However, an analysis of Chile’s experience suggests that the announcement effects of even non-discretionary programmes may be significant and persistent. Classification JEL: E58, F31, G14. |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:849&r=mst |