The market microstructure approach to foreign exchange: Looking back and looking forward

King, Michael R.; Osler, Carol L.; Rime, Dagfinn

doi:10.1016/j.jimonfin.2013.05.004

Cited by 64 publications

(30 citation statements)

References 134 publications

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“…Indeed, they are subject to the risk of not being able to offload them quickly and at a low cost, especially during crisis episodes (Melvin and Taylor ; Banti and Phylaktis ). Dealers are also prime brokers to their hedge fund clients, providing them with funding and access to interdealer trading platforms (Galati, Heath, and Mcguire ; King, Osler, and Rime ).…”

Section: Datamentioning

confidence: 99%

Illiquidity in the Stock and Foreign Exchange Markets: An Investigation of Their Cross‐market Dynamics

Banti

2016

J of Financial Research

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In this article, I investigate the illiquidity channel linking stocks and currencies and provide evidence of important illiquidity dynamics, especially during crisis episodes. I show that the stocks of small firms more exposed to funding constraints also exhibit greater linkages with foreign exchange illiquidity. Furthermore, the currencies that are common targets of carry trades are more intertwined with stock illiquidity. Regarding potential determinants, the liquidity demand by institutional investors and liquidity provision by dealers are potential triggers of systemic illiquidity spirals. These dynamics are not exclusive to the recent financial crisis but were also present during the dot‐com bubble crisis.

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Section: Datamentioning

confidence: 99%

Illiquidity in the Stock and Foreign Exchange Markets: An Investigation of Their Cross‐market Dynamics

Banti

2016

J of Financial Research

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“…King et al (2013) suggest that a dealer does not change the price when his inventory is different from the desired level.…”

Section: Modified Hs Modelmentioning

confidence: 99%

Decomposing the Bid–ask Spread in Multi‐Dealer Markets

Bleaney

2015

Int. J Fin Econ

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In this paper, we modify the Huang and Stoll (1997) spread-decomposing model to fit multi-dealer markets. In a multi-dealer market, individual dealers can rebalance their inventories either by trading with other dealers or changing the quote price. Our modified model captures this feature. Using transaction data from the Reuters D2000-1 system, we find that the order-processing and inventory control components of the spread in the foreign exchange market are relatively small and dealers may tolerate the unwanted inventory to keep the spread small to attract informed orders. The asymmetric information component carries the biggest weight.We study the time pattern of the spread and its components. The spread varies significantly with the time of day, but the inventory control and asymmetric information components do not.

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“…USD, which is 33.49% more than in April 2010. Cerrato et al (2011), King et al (2013 divide market participants into two main groups: market makers (dealers) and their clients. The clients can be financial clients, corporate clients and retail clients.…”

Section: Introductionmentioning

confidence: 99%

Exchange Rate Forecasting with Information Flow Approach

Mačerinskienė

Balčiūnas

2016

Business: Theory and Practice

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and increasing international trade turnovers lead to great demand for exchange rate forecasts. On the other hand, the amount of factors which influence the fluctuations of exchange rates, the heterogeneity of market participants, the amount of financial instruments which allow to gain exposure to a particular currency and the organizational form (over the counter system) of the market complicate the process of generating exchange rate forecasts.In the second part of 20th century there were many exchange rate forecasting models introduced. Rasekhi, Rostamzadeh (2011) classify the models to fundamen tal and technical. Fundamental models try to predict the exchange rate based on the fundamental factors with the purpose to distinguish the intrinsic value of the two cur rencies, while technical models forecast the exchange rate based on the price fluctuations from the past. It is argued that fundamental exchange rate forecasting models cannot predict the exchange rates for short term period. Even in nowaday research a paper of Meese, Rogoff (1983) Abstract. The purpose of this article is to assess exchange rate forecasting possibilities with an information flow approach model. In the model the three types of information flows are distinguished: fundamental analysis information flow through particular macroeconomic determinants, microstructure approach information flow through dealer clients' positioning data, technical analysis information flow through technical indicators. By using regression analysis it is shown that the composed model can forecast the exchange rate, the most significant information flows are distinguished. The results lead to further development of the information flow approach as a tool to forecast exchange rate fluctuations.

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The market microstructure approach to foreign exchange: Looking back and looking forward

Cited by 64 publications

References 134 publications

Illiquidity in the Stock and Foreign Exchange Markets: An Investigation of Their Cross‐market Dynamics

Illiquidity in the Stock and Foreign Exchange Markets: An Investigation of Their Cross‐market Dynamics

Decomposing the Bid–ask Spread in Multi‐Dealer Markets

Exchange Rate Forecasting with Information Flow Approach

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