Optimal informed trading in the foreign exchange market
We formulate a market microstructure model of exchange determination that 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 the 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 micro-structure of FX markets.
Year of publication: |
2012
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Authors: | Vitale, Paolo |
Published in: |
The European Journal of Finance. - Taylor & Francis Journals, ISSN 1351-847X. - Vol. 18.2012, 10, p. 989-1013
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Publisher: |
Taylor & Francis Journals |
Saved in:
Online Resource
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