This paper investigates the dynamics of price adjustments and the price discovery roles of two markets on Taiwan's foreign exchange, TFI and CFE. Results from the multivariate threshold model indicate prices are integrated nonlinearly. The roles of price discovery are asymmetric, depending on the size and sign of the price discrepancies between the two markets. In the lower regime of discrepancies, each market employs information from its counterpart and reacts to each other with different adjustment speeds. When the discrepancy is in the upper regime, CFE's role of price discovery is characterized by its exogenous behavior within the error-correction process.
Journal of International Financial Markets, Institutions and Money 19, pp. 77-93