Price Discovery and the Dynamic Lead–Lag Relationship in Currency Markets

Dimitris Kenourgios

Department of Economics & UoA Center for Financial Studies, National and Kapodistrian University of Athens, Athens, Greece, dkenourg@econ.uoa.gr

Alexandros Tsioutsios

Department of Economics & UoA Center for Financial Studies, National and Kapodistrian University of Athens, Athens, Greece, atsioutsios@econ.uoa.gr

Abstract

This paper examines price discovery and dynamic lead–lag relationships in major currency markets from February 1, 2016 to February 3, 2026. The analysis focuses on two issues: the interaction between spot and futures exchange rates to identify which market incorporates new information more rapidly, and the interdependencies among major benchmark currencies quoted against the U.S. dollar (USD) within the broader global foreign exchange network. Using Dynamic Time Warping (DTW), the study captures time-varying relationships without imposing a fixed lag structure. The results show that price discovery is not stable over time and becomes stronger during periods of uncertainty and financial stress. Some currencies appear to lead the adjustment process, while others respond with a delay, indicating asymmetric roles in the incorporation of new information. The paper contributes to the FX literature by showing that information transmission across currency markets is dynamic, asymmetric, and better captured through a flexible DTW-based approach than by traditional fixed-lag methods.

Keywords: exchange rates; lead–lag; Dynamic Time Warping; price discovery.
JEL Classification: F31; G15; C58.