Strategic Trading in a Two-Sided Foreign Exchange Auction / Linda Goldberg, Rafael Tenorio.

Format:

Book

Author/Creator:

Goldberg, Linda.

Contributor:

National Bureau of Economic Research.

Tenorio, Rafael.

Series:

Working Paper Series (National Bureau of Economic Research) no. w5187.

NBER working paper series no. w5187

Language:

English

Subjects (All):

Foreign exchange market--Econometric models.

Foreign exchange market.

Work and family.

Foreign exchange rates--Econometric models.

Foreign exchange rates.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1995.

Cambridge, Massachusetts : National Bureau of Economic Research, 1995.

Summary:

The market microstructure chosen for foreign exchange markets can influence trading volumes and equilibrium exchange rates. With emerging markets and developing countries increasingly utilizing two- sided auctions, we show that the choice of the discrete 'tƒtonnement' auction creates incentives for strategic behavior among market participants. We provide theoretical predictions on strategic under- revelation of demand or supply positions that are supported empirically using detailed data from a rare example of a tƒtonnement market, the Moscow Interbank Currency Exchange. Our results also are consistent with findings from experimental work on auctions: new entrants altered strategic behavior mainly on the market's demand side, without comparable implications for the supply side. We also show that bids and offers were influenced by fundamentals and specific policy measures.

Notes:

Print version record

July 1995.