The components of electronic inter-dealer spot FX bid-ask spreads
The components of electronic inter-dealer spot FX bid-ask spreads
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.
high frequency data, foreign exchange, market microstructure, bid-ask spreads, order driven
1635-1650
McGroarty, Frank
693a5396-8e01-4d68-8973-d74184c03072
ap Gwilym, Owain
dbd356d9-b22d-420b-a980-7341f6d52f34
Thomas, Stephen H.
a93cfe4e-b533-48ff-b1c1-2e0d4e3bf448
November 2007
McGroarty, Frank
693a5396-8e01-4d68-8973-d74184c03072
ap Gwilym, Owain
dbd356d9-b22d-420b-a980-7341f6d52f34
Thomas, Stephen H.
a93cfe4e-b533-48ff-b1c1-2e0d4e3bf448
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), .
(doi:10.1111/j.1468-5957.2007.02051.x).
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.
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e-pub ahead of print date: 2 July 2007
Published date: November 2007
Keywords:
high frequency data, foreign exchange, market microstructure, bid-ask spreads, order driven
Identifiers
Local EPrints ID: 51365
URI: http://eprints.soton.ac.uk/id/eprint/51365
ISSN: 0306-686X
PURE UUID: ec6099b8-3972-453f-a391-f845e2b11005
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Date deposited: 10 Jun 2008
Last modified: 16 Mar 2024 03:33
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Contributors
Author:
Frank McGroarty
Author:
Owain ap Gwilym
Author:
Stephen H. Thomas
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