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The Microstructure of the Foreign-Exchange Market
Lucio Sarno and Mark P. Taylor Princeton Studies in International Economics No. 89
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| This study reviews the recent and growing literature on foreign-exchange-market microstructure. It surveys, in particular, research concerned with the links between information flows, the heterogeneity of agents' expectations, and the implications of such heterogeneity for trading volume and exchange-rate volatility. The study starts with a description of the institutional setting of the foreign-exchange market. It then gives an overview of the work on foreign-exchange-market survey-data sets and order flow, as well as discussing the literature on chartist, or technical, analysis in the foreign-exchange market. Finally, it examines recent research on modeling time-varying volatility in the foreign-exchange market, on the interactions between volatility, trading volumes, and bid-ask spreads, on spread determination, and on market makers' behavior. |
