Strategic Trading in a Two-Sided Foreign Exchange Auction

39 Pages Posted: 1 Jul 2000 Last revised: 22 Sep 2010

See all articles by Linda S. Goldberg

Linda S. Goldberg

Federal Reserve Bank of New York; National Bureau of Economic Research (NBER)

Rafael Tenorio

DePaul University - Department of Economics

Date Written: July 1995

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.

Suggested Citation

Goldberg, Linda S. and Tenorio, Rafael, Strategic Trading in a Two-Sided Foreign Exchange Auction (July 1995). NBER Working Paper No. w5187. Available at SSRN: https://ssrn.com/abstract=225250

Linda S. Goldberg (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-2836 (Phone)
212-720-6831 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Rafael Tenorio

DePaul University - Department of Economics ( email )

1 E. Jackson Blvd. - Suite 6200
Chicago, IL 60604
United States
312-362-8309 (Phone)
312-362-5452 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
23
Abstract Views
809
PlumX Metrics