Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/22463
Authors: 
Osler, Carol Lee
Mende, Alexander
Menkhoff, Lukas
Year of Publication: 
2006
Series/Report no.: 
Diskussionspapiere des Fachbereichs Wirtschaftswissenschaften, Universität Hannover 351
Abstract: 
This paper makes three contributions to our understanding of the price discovery process in currency markets. First, it provides evidence that this process cannot be the familiar one based on adverse selection and customer spreads, since such spreads are inversely related to a trade?s likely information content. Second, the paper suggests three potential sources for the pattern of customer spreads, two of which rely on the information structure of the market. Third, the paper suggests an alternative price discovery process for currencies, centered on inventory management strategies in the interdealer market, and provides preliminary evidence for that process.
Subjects: 
Bid-ask spread
foreign exchange
asymmetric information
microstructure
price discovery
interdealer
inventory
market order
limit order
JEL: 
G14
F31
G15
Document Type: 
Working Paper

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