Sources of price discovery in the Australian dollar currency market

Alex Frino, Elvis Jarnecic, Maxwell Stevenson, Andrew Tan

Research output: Contribution to journalArticle

Abstract

This paper examines the source of price discovery in the Australian dollar currency market. The time-varying relationship between changes in quotes posted by cash market dealers and changes in currency futures quotes is estimated. The cash market quotations identify the eleven dealers posting the quotes, as well as geographical location of the dealers (Australia or overseas). Reported results show that price discovery originates in the cash market in any trading period. Among currency dealers, the results imply that local desks are price leaders during Australian trading hours. Though some foreign desks do contribute to price discovery during the European and U.S. trading hours, price leadership of local desks is also found to extend to this period. These findings are consistent with the proposition that local desks can provide significant price discovery in the Australian dollar currency market during Australian daytime.
Original languageEnglish
Pages (from-to)45-83
Number of pages39
JournalReview of futures markets
Volume15
Issue number1
Publication statusPublished - 2006
Externally publishedYes

Keywords

  • price discovery
  • futures
  • foreign exchange
  • Australian Dollar

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