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An Intraday Pricing Model of Foreign Exchange Markets, Rafael Romeu

Abstract
Market 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
Table Of Contents
""Contents""; ""I. INTRODUCTION""; ""II. INTRADAY PRICE DISCOVERY IN MARKETS WITH MULTIPLE DEALERS""; ""A. The Market""; ""B. The Information Structure""; ""C. The Dealer�s Optimization""; ""D. A Comparison with Existing Models""; ""III. DATA CONSIDERATIONS""; ""IV. ESTIMATION""; ""V. CONCLUSIONS""; ""APPENDIXES I. MODEL SOLUTION Inventory Carrying Cost""; ""REFERENCES""
Language
eng
Literary Form
non fiction
Note
Description based upon print version of record
Physical Description
1 online resource (42 p.)
Specific Material Designation
remote
Form Of Item
online
Isbn
9781452734088

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