Economics, Econometrics and Finance
4 years ago

Spot market leads price discovery in electronic foreign exchange markets.

SSRN Electronic Journal
Do Futures Lead Price Discovery in Electronic Foreign Exchange Markets?
Juan Francisco Ayala Cabrera, Tao Wang, Jian Yang

Paper Summary

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The study looked at how prices are determined in electronic foreign exchange markets for the Euro and Japanese Yen. They analyzed data from three different markets: CME GLOBEX regular futures, E-mini futures, and the EBS interdealer spot market. The results showed that the spot market consistently leads the price discovery process for both currencies. Additionally, E-mini futures do not play a bigger role in price discovery compared to regular futures.