Strategic trading in a two-sided foreign exchange auction
Year: 1997
Type: article
Abstract: 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 `tâtonnement' auction creates incentives for strategic behavior among market participants. Theoretical predictions on strategic under-revelation of demand or supply positions are supported empirically using detailed data from a rare example of a tâtonnement market, the Moscow Interbank Currency Exchange. Our results suggest that market microstructures should be introduced alongside more traditional asset-market fundamentals in studies of foreign exchange market activity, especially in developing countries.
Authors: Linda Goldberg, Rafael Tenorio
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $4,300
OpenAlex ID: W1965894071