Does the simple microstructure model tell the time of the FX intervention? A one day analysis of the Japanese FX intervention

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1 Citation (Scopus)

Abstract

Using tick data of the USD/JPY rate, I propose the method to detect the time of the FX intervention. I use the simple microstructure model and assume that the FX intervention causes regime-switching in the microstructure of the USD/JPY market, changes in adverse selection, and inventory effect. The time of the intervention is estimated endogenously by the Markov-switching model, and the actual starting time is well estimated. I also find that no market orders, except a large U.S. dollar purchase, convey any private information during the period of the intervention.

Original languageEnglish
Pages (from-to)436-446
Number of pages11
JournalResearch in International Business and Finance
Volume36
DOIs
Publication statusPublished - 2016 Jan 1

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Microstructure
Private information
Market order
Markov switching model
Adverse selection
Purchase
Regime switching
Ticks

Keywords

  • Exchange rates
  • High frequency data
  • Intervention
  • Markov-switching model
  • Microstructure

ASJC Scopus subject areas

  • Business, Management and Accounting (miscellaneous)
  • Finance

Cite this

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abstract = "Using tick data of the USD/JPY rate, I propose the method to detect the time of the FX intervention. I use the simple microstructure model and assume that the FX intervention causes regime-switching in the microstructure of the USD/JPY market, changes in adverse selection, and inventory effect. The time of the intervention is estimated endogenously by the Markov-switching model, and the actual starting time is well estimated. I also find that no market orders, except a large U.S. dollar purchase, convey any private information during the period of the intervention.",
keywords = "Exchange rates, High frequency data, Intervention, Markov-switching model, Microstructure",
author = "Yoshihiro Kitamura",
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AB - Using tick data of the USD/JPY rate, I propose the method to detect the time of the FX intervention. I use the simple microstructure model and assume that the FX intervention causes regime-switching in the microstructure of the USD/JPY market, changes in adverse selection, and inventory effect. The time of the intervention is estimated endogenously by the Markov-switching model, and the actual starting time is well estimated. I also find that no market orders, except a large U.S. dollar purchase, convey any private information during the period of the intervention.

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KW - Microstructure

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