We show, in this paper, that foreign exchange dealers’ quoting activity presents a significant informative signal to overall market participants. By looking at a sample of major dealers on the Euro/Dollar exchange rate, we offer prima facie evidence that first, bank dealers’ quoting activity reacts differently to the same news announcements, and that there is heterogeneity of interpretation of the news contents. Second, bank dealers’ quoting activity is affected by those of some others.
This means that dealers observe the frequency of price revision of other dealers in order to infer some useful information. This supports the hypothesis according to which FX dealers monitor quoting activity of some influential ones in order to infer some useful information, like private information held by other dealers or their manner to react to public news announcements. Quoting activity can be considered as an important informative signal that FX dealers can rely on.
By Dr W. B. Omrane and A. Heinen
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