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

Yoshihiro Kitamura

doi:10.1016/j.ribaf.2015.10.007

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

Yoshihiro Kitamura^*

^*Corresponding author for this work

School of Social Sciences

Research output: Contribution to journal › Article › peer-review

2 Citations (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 language	English
Pages (from-to)	436-446
Number of pages	11
Journal	Research in International Business and Finance
Volume	36
DOIs	https://doi.org/10.1016/j.ribaf.2015.10.007
Publication status	Published - 2016 Jan 1

Keywords

Exchange rates
High frequency data
Intervention
Markov-switching model
Microstructure

ASJC Scopus subject areas

Business, Management and Accounting (miscellaneous)
Finance

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10.1016/j.ribaf.2015.10.007

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

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",

note = "Funding Information: I thank the editor, Thomas Lagoarde-Segot for helpful comments and suggestions. This work is supported by JSPS KAKENHI Grant Number 15K03558 and a grant-in-aid from Zengin Foundation for Studies on Economics and Finance . The usual disclaimer applies. Publisher Copyright: {\textcopyright} 2015 Elsevier B.V.",

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AU - Kitamura, Yoshihiro

N1 - Funding Information: I thank the editor, Thomas Lagoarde-Segot for helpful comments and suggestions. This work is supported by JSPS KAKENHI Grant Number 15K03558 and a grant-in-aid from Zengin Foundation for Studies on Economics and Finance . The usual disclaimer applies. Publisher Copyright: © 2015 Elsevier B.V.

PY - 2016/1/1

Y1 - 2016/1/1

N2 - 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.

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.

KW - Exchange rates

KW - High frequency data

KW - Intervention

KW - Markov-switching model

KW - Microstructure

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DO - 10.1016/j.ribaf.2015.10.007

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JO - Research in International Business and Finance

JF - Research in International Business and Finance

ER -

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

Abstract

Keywords

ASJC Scopus subject areas

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