Information or Market Power: What is Governing Dealers’ Pricing Behaviour in FX Markets? : An Investigation in the Spirit of the Microstructure Approach to Exchange Rates

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by Markus Alexander Schmidt

Book Details

Format Paperback / Softback

Book Series Studien Zu Internationalen Wirtschaftsbeziehungen

ISBN-10 3631579284

ISBN-13 9783631579282

Edition New

Publisher Peter Lang AG

Imprint Peter Lang AG

Country of Manufacture DE

Country of Publication GB

Publication Date Aug 5th, 2008

Print length 248 Pages

Weight 350 grams

Dimensions 15.00 x 22.20 x 1.70 cms

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Ksh 10,650.00

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The microstructure approach provides valuable insights into high-frequent exchange rate dynamics. Recent studies, including this book, evidence the prominence of information asymmetries for asset pricing as well as order flow’s important role during information aggregation processes via trading. However, results indicate that dealers quote prices in contrast to predictions of standard theory of asset pricing under asymmetric information. By analysing a unique data set of EUR/USD transactions at a German bank, this work investigates whether this pricing behaviour is due to dealers’ strategic dealing considerations or traders’ relative market power. The study concludes that it is market power rather than strategic dealing that determines dealers’ pricing strategy.

The microstructure approach provides valuable insights into high-frequent exchange rate dynamics. Recent studies, including this book, evidence the prominence of information asymmetries for asset pricing as well as order flowâ€™s important role during information aggregation processes via trading. However, results indicate that dealers quote prices in contrast to predictions of standard theory of asset pricing under asymmetric information. By analysing a unique data set of EUR/USD transactions at a German bank, this work investigates whether this pricing behaviour is due to dealersâ€™ strategic dealing considerations or tradersâ€™ relative market power. The study concludes that it is market power rather than strategic dealing that determines dealersâ€™ pricing strategy.

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