Abstract
This study adopts a microstructural approach to examine the effect of Japanese official intervention in the yen/dollar foreign exchange market. Our empirical results show that the number of informed traders after the series of interventions is significantly larger and the degree of the market maker's reaction to the order flow and the cost of informed trading in the post-intervention period are significantly smaller than those in the pre-intervention one. This finding implies that frequent and intense intervention promotes competition among the informed traders. We interpret these data to conclude that this competition lowers the degree of information asymmetry in the market. JEL Classification: D82; E58; F31
| Original language | English |
|---|---|
| Title of host publication | Exchange Rates in Developed and Emerging Markets |
| Subtitle of host publication | Practices, Challenges and Economic Implications |
| Publisher | Nova Science Publishers, Inc. |
| Pages | 59-74 |
| Number of pages | 16 |
| ISBN (Print) | 9781628081640 |
| Publication status | Published - 2013 Dec 1 |
Keywords
- Intervention in the foreign exchange market
- Microstructure in the foreign exchange market
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)