Did the Electronic Trading System Make the Foreign Exchange Market More Efficient?

Authors

Hao Zou, Macalester CollegeFollow

Document Type

Honors Project - Open Access

Comments

Advisor: Professor Liang Ding Readers: Professor Vittorio Addona, Professor Gary Krueger

Abstract

This paper examines the effects of introducing the electronic trading system (EBS) on the foreign exchange market, the biggest financial market in the world where trading occurs through many dealers. We find that increasing transparency leads to an increase in informational efficiency, an important aspect of market quality. However, informed dealers are found to quote less aggressively in the more transparent market. Overall, we conclude that semi-transparency raises market efficiency in general, but that it is the uninformed dealers who benefit more from this increased efficiency.

Recommended Citation

Zou, Hao, "Did the Electronic Trading System Make the Foreign Exchange Market More Efficient?" (2010). Economics Honors Projects. 29.
https://digitalcommons.macalester.edu/economics_honors_projects/29