The Components of Electronic Order-Driven Spot FX Bid-Ask Spreads Pre- and Post-EMU
نویسندگان
چکیده
This paper applies an established bid-ask spread decomposition model to spot foreign exchange market in order to assess the impact of European Monetary Union (EMU). Additionally, the paper presents and tests a modified decomposition model which is specifically adapted to the features of order-driven markets. The latter model provides much improved performance. Price clustering is introduced as a new explanatory factor within this framework and is shown to be vitally important in understanding the bid-ask spread and price determination. JEL Classification: F31; G12; G15; D4
منابع مشابه
The Relative Importance of Information, Inventory and Price Clustering for STIR Futures Pre- and Post-EMU
This paper applies an established bid-ask spread decomposition model to short-term interest rate (STIR) futures to assess the impact of both the migration from floor to electronic trading and European Monetary Union (EMU). Additionally, the paper presents and tests a modified decomposition model which is specifically adapted to the features of order-driven markets. The latter model provides muc...
متن کاملBid-ask Spread and Order Size in the Foreign Exchange Market: An Empirical Investigation
This article empirically examines the relationship between order sizes and spreads in the foreign exchange market based on a FX dealer’s quotes. It is found that spreads are independent of order sizes in the inter-dealer market, but they are negatively correlated in the customer market. JEL classification: F31; G14
متن کاملMarket Microstructure Effects of Government Intervention in the Foreign Exchange Market
An asymmetric information model of the bid-ask spread is developed for foreign exchange market subject to occasional government interventions. Traditional tests of the unbiasedness of the forward rate as a predictor of the future spot rate are shown to be inconsistent when the rates are measured as the average of their respective bid and ask quotes. Larger bid-ask spreads on Fridays are documen...
متن کاملPrice behavior and Hurst exponents of tick-by-tick interbank foreign exchange rates
Our previous analysis of tick-by-tick interbank Foreign Exchange (FX) rates has suggested that the market is not efficient on short time scales. We find that the price changes show mean-reverting rather than random-walk behavior [4]. The results of rescaled range and Hurst exponent analysis presented in the first part of this paper further confirms the meanreverting attribute in the FX data. In...
متن کاملThe Market Microstructure of Illiquid Option Markets and Interrelations with the Underlying Market Draft Version
Understanding and measuring determinants of bid-ask spreads is decisive to clarifying the efficiency of the microstructure of any exchange and general market liquidity. This paper examines the market microstructure of a low liquidity, market maker driven option market, the relations to the underlying securities’ market and the challenges of pricing liquidity. Comparing empirical results with pr...
متن کامل