Associate Professor Wu Zhenxing's collaborative paper titled 'Price discovery and triangular arbitrage in currency markets' has been published in the prestigious international journal, the Journal of International Money and Finance. The Journal of International Money and Finance is a high-quality academic journal that focuses on theoretical and empirical research in the fields of international monetary economics, international finance, and the rapidly evolving overlap between these areas.

Abstract：Price discovery is the process by which markets incorporate the relevant information to arrive at the efficient price of an asset. We study the price discovery process in JPY/EUR cross-rates and the rates derived from exchanges of JPY/USD and USD/EUR indirectly. The results highlight the role of the USD as a vehicle currency in enhancing price efficiency through the triangular arbitrage. During financial crisis periods, the implied JPY/EUR rates have even more contribution to price discovery than direct rates. We show the dominant price discovery of implied JPY/EUR rates relates to the lower transaction cost. Upon the release of macroeconomic announcements in Japan and Europe zone, the trading cost advantage enhances price discovery of implied rates even more. The more contribution to price discovery of implied rates predicts the higher future volatility of direct JPY/EUR rates, indicating the slower response of direct rates to the information shock and the subsequent adjustment resulting in higher variations in the direct rates.

Teacher Profile

Wu Zhenxing is an Associate Professor at the School of Finance, Zhongnan University of Economics and Law, where he holds a position under an annual salary system. He also serves as a researcher at the Innovation and Intelligence Introduction Base for Digital Technology and Modern Finance. His research interests encompass the application of market microstructure theory in international finance, asset pricing, and corporate finance topics. His research findings have been published in international journals such as the Journal of International Money and Finance and the Journal of Corporate Finance