PDF An Intraday Pricing Model of Foreign Exchange Markets


PDF An Intraday Pricing Model of Foreign Exchange Markets


AbstractMarket makers learn about asset values as they set intraday prices and absorb portfolio flows. Absorbing these flows causes inventory imbalances. Previous work has argued that market makers change prices to manage incoming flows and offset inventory imbalances. This study argues that they have multiple instruments, or ways to manage inventory imbalances and learn about evolving asset values. Hence, they smooth inventory levels and update prior information about assets using multiple instruments.

In ignoring other instruments, previous studies have ignored the information that these provide and overemphasize the role of price changes in inventory management. The model presented here provides new estimates of asymmetric information and inventory effects, the price impact of each instrument, the cost of liquidity, and the impact of an intervention on these costs. Market makers learn about asset values as they set intraday prices and absorb portfolio flows. In ignoring other instruments, previous studies have ignored the information that these provNote: Citations are Forign on reference standards.

However, formatting rules can vary widely between applications and Intradxy of interest or study. The E-mail message field is required. Please enter the message. Markrts Capital Markets DepartmenAbstractMarket makers learn about asset values as they set intraday Exhcange and absorb portfolio flows. The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released Markwts year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.




Markets An Intraday Pricing Foreign PDF Exchange of Model

Markets An Intraday Pricing Foreign PDF Exchange of Model

Markets An Intraday Pricing Foreign PDF Exchange of Model



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