TY  - JOUR
AU  - Goldberg,Linda
AU  - Tenorio,Rafael
TI  - Strategic Trading in a Two-Sided Foreign Exchange Auction
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5187
PY  - 1995
Y2  - July 1995
UR  - http://www.nber.org/papers/w5187
L1  - http://www.nber.org/papers/w5187.pdf
N1  - Author contact info:
Linda S. Goldberg
Federal Reserve Bank-New York
33 Liberty Street
New York, NY 10045
Tel: 212/720-2836
Fax: 212/720-6831
E-Mail: linda.goldberg@ny.frb.org
AB  - 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.
ER  -