Topic
Foreign exchange market
About: Foreign exchange market is a research topic. Over the lifetime, 6661 publications have been published within this topic receiving 153384 citations. The topic is also known as: forex & FX.
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TL;DR: The authors empirically investigated how dealers jointly make these decisions in the foreign exchange market using a unique simultaneous equations model using an ordered probit model to account for the discrete nature of order aggressiveness and a censored regression model to capture the quantity decision recognizing the clustering of orders at the smallest available quantity.
62 citations
TL;DR: The authors examined the relationship between the efficacy of intervention operations and the "state of the market" at the moment that the operation is made public to traders, using high-frequency data.
Abstract: One of the great unknowns in international finance is the process by which new information influences exchange rate behavior. Until recently, data constraints have limited our ability to examine this issue. The Olsen and Associates high-frequency spot market data greatly expand the range of testable hypotheses regarding the influence of information. This paper focuses on one important source of information to the foreign exchange markets, the intervention operations of the G-3 central banks. Previous studies using daily and weekly foreign exchange rate data suggest that central bank intervention operations can influence both the level and variance of exchange rates, but little is known about how exactly traders learn about these operations and whether intra-daily market conditions influence their effectiveness. Using high-frequency data, this paper will examine the relationship between the efficacy of intervention operations and the "state of the market" at the moment that the operation is made public to traders.
62 citations
TL;DR: The authors examined the reaction of financial market returns and volatility in a diverse group of six emerging markets to a set of IMF events during the Asian, Russian and Brazilian crises of 1997-1999.
62 citations
TL;DR: In this paper, the authors argue that central banks actively engage in sterilized foreign exchange market intervention despite numerous empirical studies indicating that these operations do not systematically affect the exchange rate, and provide evidence on the effectiveness of sterilized intervention using an event study approach linking intervention with systematic exchange rate changes.
Abstract: Central banks actively engage in sterilized foreign exchange market intervention despite numerous empirical studies indicating that these operations do not systematically affect the exchange rate. Are these policies misguided and central bankers irrational? Or is evidence showing the effectiveness of sterilized intervention being overlooked? This paper argues the latter, providing evidence on the effectiveness of sterilized intervention using an event study approach linking intervention with systematic exchange rate changes. Studies using time-series techniques are limited by the nature of the data: intense and sporadic bursts of intervention activity juxtaposed against exchange rates that change almost continuously on a daily basis. The event study framework used in standard finance studies, by contrast, is better suited to this circumstance. Focusing on daily Bundesbank and US official intervention operations, we identify separate intervention "episodes" and analyze the subsequent effect on the exchange rate. Using the nonparametric sign test and matched-sample test, we find strong evidence that sterilized intervention systemically affects the exchange rate in the short-run. This result is robust to changes in event window definitions over the short-run and to controlling for central bank interest rate changes during events.
62 citations
TL;DR: This article reviewed and evaluated the literature on announcement effects on foreign exchange returns, including the speed of market reaction to news and how order flow helps impound public and private information into prices.
Abstract: Researchers have long studied the reaction of foreign exchange returns to macroeconomic announcements in order to infer changes in policy reaction functions and foreign exchange microstructure, including the speed of market reaction to news and how order flow helps impound public and private information into prices. These studies have often been disconnected, however; and this article critically reviews and evaluates the literature on announcement effects on foreign exchange returns.
62 citations