Price Discovery in Multiple-Dealer Markets: The Case of the Interbank Foreign Exchange Market (original) (raw)

Price discovery in the foreign exchange futures market

Journal of Futures Markets, 2006

Examination is made of the relative contributions to price discovery of the floor and electronically traded euro FX and Japanese yen futures markets and the corresponding retail on-line foreign exchange spot markets. GLOBEX electronic futures contracts provide the most price discovery in the euro; the on-line trading spot market provides the most in the Japanese yen. The floor-traded futures markets contribute the least to price discovery in both the euro and the Japanese yen markets. The overall results show that electronic trading platforms facilitate price discovery more efficiently than floor trading. Futures traders may also extract information from on-line spot prices. © 2006 Wiley Periodicals, Inc. Jrl Fut Mark 26:1131–1143, 2006

Price Discovery in Brazilian FX Markets

2015

We study price discovery in the Brazilian Foreign Exchange (FX) markets and indicate which market (spot or futures) adjusts more quickly to the arrival of new information. We find that the futures market dominates price discovery since it accounts for 66.2 % of the variation in the fundamental price shock and 97.4 % of the fundamental price composition. This corroborates results from previous studies that, in a unique world example, the exchange rate is formed in the futures market. In a dynamic perspective, the futures market is also more efficient since equilibrium is more quickly restored when markets are subjected to a shock in the fundamental price. By computing price discovery according to calendar semesters, we find evidence of the correlation between price discovery metrics and market factors, such as spot market supply-demand disequilibrium, central bank interventions, and institutional investors’ pressure.