Puzzles in the Forex Tokyo “Fixing”: Order Imbalances and Biased Pricing by Banks

Ito, Takatoshi; Yamada, Masahiro

“Fixing” in the foreign exchange market is a market practice that determines the bid-ask-mid- point exchange rate at a scheduled time, 10am in Tokyo and 4pm in London. The fixing exchange rate is then applied to the settlement of foreign exchange transactions between banks and retail customers including broker dealers, institutional investors, insurance companies, exporters, and importers, with varying bid-ask spreads.
Our findings for the Tokyo fixing are summarized as follows: (1) Price spikes in the Tokyo fixing are more frequent than in the London fixing. (2) The customer orders are biased toward buying foreign currencies, which is predictable. (3) Before 2008, the fixing prices set by banks were biased upward, and higher than the highest transaction price during the fixing time window. (4) Even after 2008, the fixing prices announced by banks were still above the median transaction price during the fixing window, suggesting that banks make predictable profits. (5) The calendar effects also matter for determination of the fixing rate and the price fluctuation around fixing time.


  • thumnail for WP_352.Ito-Yamada.Tokyo_Fixing_Puzzles.pdf WP_352.Ito-Yamada.Tokyo_Fixing_Puzzles.pdf application/pdf 1.71 MB Download File

More About This Work

Academic Units
Center on Japanese Economy and Business
Center on Japanese Economy and Business, Graduate School of Business, Columbia University
Center on Japanese Economy and Business Working Papers, 352
Published Here
July 21, 2016