Autore
Wuthe, Norbert

Titolo
Exchange rate volatility's dependence on different degrees of competition under different learning rules.
Periodico
European University Institute of Badia Fiesolana (Fi). Department of Economics - Working papers
Anno: 2000 - Fascicolo: 11 - Pagina iniziale: 1 - Pagina finale: 58

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.




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