The authors are grateful to the editor, Robert Van Ness, and two anonymous reviewers, whose comments and suggestions have greatly improved the paper.
Price Clustering in the U.S. Dollar/Taiwan Dollar Swap Market
Version of Record online: 21 JAN 2013
© 2013, The Eastern Finance Association
Volume 48, Issue 1, pages 77–96, February 2013
How to Cite
Liu, H.-C. and Witte, M. D. (2013), Price Clustering in the U.S. Dollar/Taiwan Dollar Swap Market. Financial Review, 48: 77–96. doi: 10.1111/j.1540-6288.2012.00353.x
- Issue online: 21 JAN 2013
- Version of Record online: 21 JAN 2013
- price clustering;
- foreign exchange;
- market microstructure
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.