FX Trading and Exchange Rate Dynamics [chapter]

Martin D. D. Evans
2017 Studies in Foreign Exchange Economics  
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 mark0dollar market that produces 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
more » ... under normal market conditions, changes comparatively slowly; 2! public news is rarely the predominant source of exchange rate movements over any horizon.
doi:10.1142/9789813148543_0005 fatcat:ecja42i2hvcevowb4gdfuvr6om