Department of Economics, Arizona State University, and American Express Company. I thank René Stulz, an anonymous referee, and participants at the HFDF-1 Conference in Zurich for valuable comments. Seung Ahn, Tim Bollerslev, and Michael Melvin provided useful suggestions on earlier drafts. I am grateful to Michel Dacorogna and the research team at Olsen & Associates for sharing their Reuters data.
Informed Traders, Intervention, and Price Leadership: A Deeper View of the Microstructure of the Foreign Exchange Market
Article first published online: 18 APR 2012
1997 The American Finance Association
The Journal of Finance
Volume 52, Issue 4, pages 1589–1614, September 1997
How to Cite
PEIERS, B. (1997), Informed Traders, Intervention, and Price Leadership: A Deeper View of the Microstructure of the Foreign Exchange Market. The Journal of Finance, 52: 1589–1614. doi: 10.1111/j.1540-6261.1997.tb01122.x
- Issue published online: 18 APR 2012
- Article first published online: 18 APR 2012
This article identifies price leadership patterns in foreign exchange trading, with a focus on central bank intervention as an informational trigger for leadership positioning. Granger causality tests applied to DM/US$ spot rate quotes reveal Deutsche Bank as a price leader up to 60 minutes prior to Bundesbank interventionary reports. By the minus 25-minute mark, interbank quote adjustments become two-way Granger-causal. These results suggest that central bank activity is revealed in stages: first to the price leader, then to competitors, and lastly to the general public.