Abstract
We study the price discovery in a foreign exchange electronic limit order market on a daily basis, by examining the informativeness of ask and bid quotes in the process of price formation. Using the data of prices and trades in the Euro-Dollar spot market via Electronic Broking Services (EBS), we find bid quotes provide more price discovery. This dominance of bid quotes in price discovery is stronger on Monday and is weaker on Friday. Asymmetries in the responses of ask and bid quotes to trade-related information evolve with daily order flow, daily return, the interactive term between spread and order flow, and the volatility, skewness, and kurtosis in the distribution of efficient exchange rate changes.
| Original language | English |
|---|---|
| Pages (from-to) | 194-204 |
| Number of pages | 11 |
| Journal | Journal of Banking and Finance |
| Volume | 38 |
| Issue number | 1 |
| DOIs | |
| State | Published - Jan 2014 |
Keywords
- Bid-ask spread
- Common factor weight
- Information share
- Order flow
- Price discovery