Journal of Finance Vol. 57 No. 6 2002
FX Trading and Exchange Rate Dynamics
Abstract
I examine the sources of exchange rate dynamics by focusing on the information structure of FX trading. This structure permits the existence of an equilibrium distribution of transaction prices at a point in time. I develop and estimate a model of the price distribution using data from the Deutsche mark/dollar market that prroduces two striking results: (1) Much of the short‐term volatility in exchange rates comes from sampling the heterogeneous trading decisions of dealers in a distribution that, under normal market conditions, changes comparatively slowly; (2) public news is rarely the predominant source of exchange rate movements over any horizon.
- DOI
- 10.1111/1540-6261.00501
- Volume
- 57
- Issue
- 6
- Pages
- 2405-2447
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref