Journal of Financial Economics Vol. 141 No. 2 2021
Network structure and pricing in the FX market
Abstract
We construct the network, centrality measures, and attributions of trading profits for a sample of CLS Bank settlement data that spans diverse currency pairs, participants, and execution platforms. We define an average centrality differential as the return to the more-central counterparty in the trade. Estimates imply that the more-central counterparty receives a higher return, and that this differential increases as the counterparties’ centralities diverge. These two results are consistent with a pervasive centrality premium. This premium may reflect bargaining power, but we also find evidence that the premium is partially offset by losses that central agents incur in supplying liquidity.
- DOI
- 10.1016/j.jfineco.2021.04.013
- Volume
- 141
- Issue
- 2
- Pages
- 705-729
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref