Auction-based tests of inventory control and private information in a centralized interdealer FX market

Pietro Bonaldi and Mauricio Villamizar-Villegas

Journal of Financial Markets, 2025, vol. 74, issue C

Abstract: This study examines how inventory control and private information affect trading prices and volumes in a centralized interdealer foreign exchange (FX) market. Using exogenous variation from FX auctions conducted by the Colombian Central Bank (2008–2014), we analyze settlement data from the COP/USD spot market before and after each auction. Comparing dealers with differing inventory and information shocks, we find that those with reduced inventories increase net USD purchases and pay higher prices post-auction.

Keywords: Microstructure; Foreign exchange; Private information; Inventory control; Auctions (search for similar items in EconPapers)
JEL-codes: D44 F31 G15 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:74:y:2025:i:c:s1386418125000217

DOI: 10.1016/j.finmar.2025.100981

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