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on Market Microstructure |
| By: | Vitale, Paolo |
| Abstract: | We formulate a market microstructure model of exchange determination we employ to investigate the impact of informed trading on exchange rates and on foreign exchange (FX) market conditions. With our formulation we show how strategic informed agents influence exchange rates via both portfolio-balance and information effects. We outline the connection which exists between the private value of information, market efficiency, liquidity and exchange rate volatility. Our model is also consistent with recent empirical research on the microstructure of FX markets. |
| Keywords: | exchange rate dynamics; foreign exchange micro structure; order flow; private information |
| JEL: | D82 G14 G15 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6553&r=mst |
| By: | Schoeneborn, Torsten; Schied, Alexander |
| Abstract: | We consider a multi-player situation in an illiquid market in which one player tries to liquidate a large portfolio in a short time span, while some competitors know of the seller's intention and try to make a pro¯t by trading in this market over a longer time horizon. We show that the liquidity characteristics, the number of competitors in the market and their trading time horizons determine the optimal strategy for the competitors: they either provide liquidity to the seller, or they prey on her by simultaneous selling. Depending on the expected competitor behavior, it might be sensible for the seller to pre-announce a trading intention (\sunshine trading") or to keep it secret (\stealth trading"). |
| Keywords: | Liquidity; liquidity crisis; liquidity provision; optimal liquidation strategies; predatory trading; sunshine trading; stealth trading |
| JEL: | G12 G10 G33 |
| Date: | 2007–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:5548&r=mst |