Asymmetric Information and Price Discovery in the FX Market: Does Tokyo Know More About the Yen?

1999 ◽  
Author(s):  
Vicentiu Covrig ◽  
Michael Melvin
Keyword(s):  
Asymmetric Information ◽  
Price Discovery ◽  
Fx Market

Price Discovery and Transmission Mechanism between CDS and FX markets

2011 ◽  
Vol 19 (1) ◽  
pp. 37-58
Author(s):  
Hong Bae Kim ◽  
Sang Hoon Kang
Keyword(s):  
Financial Crisis ◽  
Trading Volume ◽  
Price Discovery ◽  
Global Financial Crisis ◽  
Credit Default Swap ◽  
Spillover Effects ◽  
Reverse Direction ◽  
Volatility Transmission ◽  
The Global Financial Crisis ◽  
Fx Market

This study investigated the relationship between the CDS (credit default swap) market with the FX spot (FX swap) market, including the period of recent global financial crisis. A measure for market efficiency is the condition that the derivative markets dominate the asset market in price discovery. In our case, however, FX market should be leading the CDS market. We found FX (spot and Derivatives) market has co-integration relationship with CDS market. Looking at Gonzalo Granger (GG) and Hasbrouck's price discovery measure, we found the FX spot and derivatives market dominated CDS market in price discovery. This study has also examined the direction of shock spillover and volatility transmission between Korean CDS spread and Foreign exchange spot (FX swap) markets using the VECM bivariate GARCH approach. Our evidence suggested the presence of bi-directional shock volatility and volatility transmission between the CDS market and FX spot market partially exist. However, volatility spillover effects from CDS market to FX Swap market are stronger than in the reverse direction during the global financial crisis, indicating that the CDS spread signaling sovereign risk play a more important role in influencing the volatility of FX derivatives market. There are some particular features in FX market. The volatility and shock of CIP deviations reflecting arbitrage opportunities in FX swap market are influenced by those of CDS spread in tranquil period prior to Lehman failure. But after Lehman failure CDS played a crucial role in signaling credit risk in FX derivatives market. We found that higher liquidity and trading volume of market matters more in price discovery and information transmission.

Evidences for Price Discovery between On- and Off-shore Won/Dollar Spot, Forward and NDF FX Rate

2016 ◽  
Vol 24 (2) ◽  
pp. 339-363
Author(s):  
Ki Beom Binh ◽  
Sang-min Lee ◽  
Won Seop Lee
Keyword(s):  
Financial Markets ◽  
Exchange Rates ◽  
Price Discovery ◽  
Mutual Influence ◽  
Dollar Spot ◽  
Information Share ◽  
Global Crisis ◽  
Exchange Rate Fluctuations ◽  
Spot Exchange Rate ◽  
Fx Market

Using Hasbrouck’s (1995, 2002) information share method, we examine the mutual price discovery dynamics among Won/Dollar spot, forward, and NDF exchange rates in on- and off-shore FX markets. Our findings include : (i) During the entire period, the mutual price discovery between on-shore FX market and off-shore NDF market are significantly led by on-shore Won-Dollar spot and forward exchange rates. (ii) Within the period around the global crisis, NDF exchange rates have mutual influence on the price discovery, which is expecially greater than the any other period. The results show Won-Dollar spot exchange rate fluctuations during the global crisis are greatly affected by external factors of the international financial markets. Not only that, but off-shore NDF trading promptly reflects the price information of KRW on the factors.

scholarly journals O Conteúdo Informacional das Transações no Mercado Futuro de Câmbio: uma investigação do caso brasileiro

2016 ◽  
Vol 14 (1) ◽  
pp. 7
Author(s):  
Vanessa Neumann Sulzbach ◽  
João Mergulhão ◽  
Pedro L. Valls Pereira
Keyword(s):  
Asymmetric Information ◽  
Exchange Rates ◽  
Private Information ◽  
Market Liquidity ◽  
Structural Var ◽  
Order Flow ◽  
Trading Costs ◽  
Price Variation ◽  
Efficient Price ◽  
Fx Market

The microstructure approach to exchange rates have received special attention in recent years, particularly because it highlights the existence of asymmetric information in this market. The Brazilian future FX market data provided from BM&F was used to test the private information effects of trading on prices. The structural VAR results confirm the existence of asymmetric information in this market, indicating that roughly 50% of all efficient price variation is due to the private information of the order flow. Additionally, the order flow observation allows the informed and uninformed arrival rates estimation, which we use to calculate the probability of information-based trade (PIN). High PIN value leads to wide spreads, which reduces the market liquidity. The PIN results about 1.53% indicate the liquidity of Brazilian future FX market is quite high, what impound fewer trading costs for the uninformed agents.

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