Microstructure And Market Maker Price Strategies: Study Of A Tunisian Market Maker Activity

This paper provides evidence on market making behaviour of FX dealer in the Tunisian FX. It uses a complete data set that includes intra-day trades for the euro and US dollar. The sample period is 1 January 2007 to 31 December 2007. The results are consistent with the findings of the literature that used trades and inventories data. I find evidence that customer order flow has information effect on USD/TND. However, I do not find evidence that customer order flow has information effect on EUR/TND. Moreover, inter-dealer order flow has a positive effect on the market maker price strategy. I also find that the central bank intervention has positive and significant effect on dealer’s behaviour and price formation process. My study also suggests that dealer is risk aversion and his quotes flows the references quotes tendency.