The components of electronic inter-dealer spot FX bid-ask spreads


McGroarty, Frank, ap Gwilym, Owain and Thomas, Stephen H. (2007) The components of electronic inter-dealer spot FX bid-ask spreads. Journal of Business Finance & Accounting, 34, (9-10), 1635-1650. (doi:10.1111/j.1468-5957.2007.02051.x).

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Description/Abstract

This paper applies an established bid-ask spread decomposition model to the inter-dealer spot foreign exchange market. In addition, the paper presents and tests a modified decomposition model which is specifically adapted to the features of order-driven markets and which is found to produce more plausible results than the original model. Price clustering is introduced as a new explanatory factor within this framework and is shown to be vitally important in understanding the composition of bid-ask spreads in this market.

Item Type: Article
ISSNs: 0306-686X (print)
Keywords: high frequency data, foreign exchange, market microstructure, bid-ask spreads, order driven
Subjects: H Social Sciences > HG Finance
Divisions: University Structure - Pre August 2011 > School of Management
ePrint ID: 51365
Date Deposited: 10 Jun 2008
Last Modified: 27 Mar 2014 18:34
URI: http://eprints.soton.ac.uk/id/eprint/51365

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