Exchange Rate Volatility's Dependence on Different Degrees of Competition under Different Learning Rules. A Market Microstructur Approach

N. Wuthe

Economics Working Papers from European University Institute

Abstract: We assess the phenomenon of excess volatility in intra-day foreign exchange markets using a market microstructure approach. Introducing different degrees of competition in the forex market and applying different learning mechanisms we are able to give a rationale for traders' use of rather simple learning rules: Behaving less rationally turns out to be more profitable, thus preserving rationality in traders' choice. Competition's impact on volatility is ambiguous: Depending on the variance measure applied volatility can be increasing in competition.

Keywords: COMPETITION; EXCHANGE RATE (search for similar items in EconPapers)
JEL-codes: D40 F31 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2000
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eui:euiwps:eco2000/11

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