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Under the microscope: the structure of the foreign exchange market

  • Michael J. Sager

    (Putnam Investments and University of Warwick, UK)

  • Mark P. Taylor

    (University of Warwick and Centre for Economic Policy Research, UK)

We provide a detailed, up-to-date description of the microstructure of the foreign exchange market and of the behaviour of participant groups. In the light of this, we highlight shortcomings in existing theoretical models of market interaction and present an outline alternative model that marries theoretical prediction and current market practice. Copyright © 2006 John Wiley & Sons, Ltd.

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Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 11 (2006)
Issue (Month): 1 ()
Pages: 81-95

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Handle: RePEc:ijf:ijfiec:v:11:y:2006:i:1:p:81-95
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  1. Osler, Carol L., 2005. "Stop-loss orders and price cascades in currency markets," Journal of International Money and Finance, Elsevier, vol. 24(2), pages 219-241, March.
  2. Martin D. D. Evans & Richard K. Lyons, 2002. "Order Flow and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 110(1), pages 170-180, February.
  3. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
  4. Martin Evans and Richard K. Lyons, 2002. "Informational Integration and FX Trading," Working Papers gueconwpa~02-02-11, Georgetown University, Department of Economics.
  5. Rime, Dagfinn, 2001. "U.S. Exchange Rates and Currency Flows," SIFR Research Report Series 4, Institute for Financial Research.
  6. Mark P. Taylor, 1995. "The Economics of Exchange Rates," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 13-47, March.
  7. Cheung, Yin-Wong & Chinn, Menzie David, 2001. "Currency traders and exchange rate dynamics: a survey of the US market," Journal of International Money and Finance, Elsevier, vol. 20(4), pages 439-471, August.
  8. Richard K. Lyons, 2002. "Theoretical perspective on euro liquidity," Economic Policy, CEPR;CES;MSH, vol. 17(35), pages 571-597, October.
  9. Jonathan Kearns & Phil Manners, 2004. "The Profitability of Speculators in Currency Futures Markets," RBA Research Discussion Papers rdp2004-07, Reserve Bank of Australia.
  10. Dominguez, Kathryn M. E., 2003. "The market microstructure of central bank intervention," Journal of International Economics, Elsevier, vol. 59(1), pages 25-45, January.
  11. Bjonnes, Geir Hoidal & Rime, Dagfinn, 2005. "Dealer behavior and trading systems in foreign exchange markets," Journal of Financial Economics, Elsevier, vol. 75(3), pages 571-605, March.
  12. Kenneth A. Froot & Kenneth Rogoff, 1994. "Perspectives on PPP and Long-Run Real Exchange Rates," NBER Working Papers 4952, National Bureau of Economic Research, Inc.
  13. Rime,D., 2000. "Private or public information in foreign exchange markets? : an empirical analysis," Memorandum 14/2000, Oslo University, Department of Economics.
  14. Karen K. Lewis, 1994. "Puzzles in International Financial Markets," NBER Working Papers 4951, National Bureau of Economic Research, Inc.
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