The Microstructure Approach to Exchange Rates

The Microstructure Approach to Exchange Rates

By Richard K. Lyons





Historically, the fields of exchange-rate economics and microstructure finance have progressed independently of each other. Recent interaction, however, has given rise to a microstructure approach to exchange rates. This book focuses on the economics of financial information and how microstructure tools help to clarify the types of information most relevant to exchange rates.

The microstructure approach views exchange rates from the perspective of the trading room, the place where exchange rates are actually determined. Emphasizing information economics over institutional issues, the approach departs from three unrealistic assumptions common to previous approaches: that all information relevant to exchange rates is publicly available, that all market participants are alike in their goals or in how they view information, and that how trading is organized is inconsequential for exchange rates. The book shows how exchange-rate behavior previously thought to be particularly puzzling can be explained using the microstructure approach. It contains a combination of theoretical and empirical work.


Out of Print ISBN: 9780262122436 346 pp. | 6 in x 9 in 50 illus.


$40.00 X ISBN: 9780262622059 346 pp. | 6 in x 9 in 50 illus.


  • [A] thought-provoking introduction to the subject.

    Financial Analysts Journal


  • An innovative and important book that will be required reading for researchers in both microstructure and international finance.

    Maureen O'Hara

    R. W. Purcell Professor of Finance, Cornell University

  • The Microstructure Approach to Exchange Rates is an excellent overview of market microstructure principles and an impressive application of these principles to an important financial market. It furthermore suggests many insights that a microstructure approach might yield in the analyses of financial markets in general. Professor Lyons has compiled a well-integrated synthesis of his and others' past work that also suggests worthwhile directions for further investigation.

    Joel Hasbrouck

    Stern School of Business, New York University