Strategic Trading in a Two-Sided Foreign Exchange Auction

Linda Goldberg and Rafael Tenorio

No 5187, NBER Working Papers from National Bureau of Economic Research, Inc

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 '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.

Date: 1995-07
Note: IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published as Journal of International Economics, 1997, vol.42/3-4.

Downloads: (external link)
http://www.nber.org/papers/w5187.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:5187

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w5187

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().