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Title:Where does price discovery occur in FX markets? PDF Logo
Authors:D'Souza, Chris
Issue Date:2007
Series/Report no.:Bank of Canada Working Paper 2007,52
Abstract:Trades in foreign exchange markets are initiated around the world and around the clock. This study illustrates that trades are more informative when initiated in a local country or in major foreign exchange centers like London and New York. Evidence suggests that informational asymmetries based on geography arise from the market making capacity of dealers and the customer order flow that dealers capture during regional business hours. Findings also show that market orders initiated in price-correlated FX markets are not informative. Transparency in quotes on electronic trading platforms may prevent informed participants from exploiting information across FX markets. Overall, these results are robust across different market conditions.
Subjects:Market structure and pricing
Exchange rates
Financial markets
JEL:F31
G15
Document Type:Working Paper
Appears in Collections:Bank of Canada Working Papers

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