The Clustering of Bid/Ask Prices and the Spread in the Foreign Exchange Market

Riccardo Curcio · Charles A.E. Goodhart

69 citations0/0 files storedRePEc: Research Papers in Economics

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Financial Markets and Investment Strategies Complex Systems and Time Series Analysis Benford’s Law and Fraud Detection

Abstract

Following Lawrence Harris (1989b) study of price clustering in stock prices, we examine the smae phenomenon in the forex market. The pattern of clustering in the final digit of bid/ask prices depends on the desired degree of price resolution. The selection of spreads also involves clustering, but this is driven by a different behavioural pattern, consistent with the pure attraction hypothesis. The combination of the two patterns can explain the differing frequencies of final digits in the bids as compared with the asks.

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2005Price clustering on the limit-order book: Evidence from the Stock Exchange of Hong Kong 2007Price Clustering on the Tokyo Stock Exchange 1998Price clustering and bid-ask spreads in international bond futures 2009Price Clustering: Evidence Using Comprehensive Limit‐Order Data 1998Do Reuters spreads reflect currencies' differences in global trading activity?2003Decreased price clustering in FTSE100 futures contracts following a transfer from floor to electronic trading 2010Investigating price clustering in the oil futures market 2005Clustering and psychological barriers in exchange rates

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