Dealer Behavior and Trading Systems in Foreign Exchange Markets

43 Pages Posted: 27 Nov 2000

See all articles by Geir Hoidal Bjonnes

Geir Hoidal Bjonnes

BI Norwegian Business School

Dagfinn Rime

BI Norwegian Business School

Date Written: August 2000

Abstract

We study dealer behavior in the foreign exchange spot market using detailed observations on all the transactions of four interbank dealers. There is strong support for an information effect in incoming trades. The direction of trade is most important, but we also find that the information effect increases with trade size in direct bilateral trades. All four dealers control their inventory intensively. Inventory control is not, however, manifested through a dealer's own prices in contrast with findings by Lyons [J. Fin. Econ 39(1995) 321]. Furthermore, we document differences in trading styles, especially how they actually control their inventories.

Keywords: Foreign exchange, microstructure, trading

JEL Classification: F31, G15

Suggested Citation

Bjonnes, Geir Hoidal and Rime, Dagfinn, Dealer Behavior and Trading Systems in Foreign Exchange Markets (August 2000). EFA 0575, Available at SSRN: https://ssrn.com/abstract=560301 or http://dx.doi.org/10.2139/ssrn.560301

Geir Hoidal Bjonnes (Contact Author)

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0484
Norway
+47 46410502 (Phone)

HOME PAGE: http://www.bi.no/BI/AcademicProfile____37601.aspx?ansattid=/fgl96014

Dagfinn Rime

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway
+47-46410507 (Phone)

HOME PAGE: http://home.bi.no/dagfinn.rime/

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