Strategic Trading in a Two-Sided Foreign Exchange Auction
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 of creation:||Jul 1995|
|Date of revision:|
|Publication status:||published as Journal of International Economics, 1997, vol.42/3-4.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Linda S. Goldberg, 1993. "Foreign Exchange Markets in Russia: Understanding the Reforms," IMF Staff Papers, Palgrave Macmillan, vol. 40(4), pages 852-864, December.
- William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, 03.
- Bulow, Jeremy & Klemperer, Paul, 1994.
"Rational Frenzies and Crashes,"
Journal of Political Economy,
University of Chicago Press, vol. 102(1), pages 1-23, February.
- Goldberg, L.S. & Karimov, I., 1992.
"Blak-Markets for Currency, Hoarding Activity and Policy Reforms,"
92-38, C.V. Starr Center for Applied Economics, New York University.
- Goldberg, Linda S. & Karimov, Il'dar, 1997. "Black markets for currency, hoarding activity and policy reforms," Journal of International Economics, Elsevier, vol. 42(3-4), pages 349-369, May.
- Rajnish Mehra & Robert Alan Feldman, 1993. "Auctions: Theory and Possible Applications to Economies in Transition," IMF Working Papers 93/12, International Monetary Fund.
- Tenorio, Rafael, 1993. "Revenue Equivalence and Bidding Behavior in a Multi-unit Auction Market: An Empirical Analysis," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 302-14, May.
- Holt, Charles A & Langan, Loren W & Villamil, Anne P, 1986. "Market Power in Oral Double Auctions," Economic Inquiry, Western Economic Association International, vol. 24(1), pages 107-23, January.
- Schmeidler, David, 1980. "Walrasian Analysis via Strategic Outcome Functions," Econometrica, Econometric Society, vol. 48(7), pages 1585-93, November.
- Walker, Donald A, 1972. "Competitive Tatonnement Exchange Markets," Kyklos, Wiley Blackwell, vol. 25(2), pages 345-63.
- Smith, Vernon L, 1982. "Markets as Economizers of Information: Experimental Examination of the "Hayek Hypothesis"," Economic Inquiry, Western Economic Association International, vol. 20(2), pages 165-79, April.
- Arto Kovanen, 1994. "Foreign Exchange Auctions and Fixing: A Review of Performance," IMF Working Papers 94/119, International Monetary Fund.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:5187. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.