Exchange rate risk and transactions costs: Evidence from bid-ask spreads
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Cited by (60)
Sovereign Credit Default Swaps and the Currency Forward Bias
2023, Journal of International Financial Markets, Institutions and MoneyLiquidity withdrawal in the FX spot market: A cross-country study using high-frequency data
2019, Journal of International Financial Markets, Institutions and MoneyCitation Excerpt :The coefficients are large and a wider spread has an immediate negative impact on market liquidity. These findings are consistent with the literature showing that higher volatility tends to be associated with wider bid-ask spreads (Bessembinder, 1994; Bollerslev and Melvin, 1994; Glassman, 1987; Hartmann, 1998). Thus, a relatively wide bid-ask spread might indicate uncertainty in the market, having a similar effect on the volume at the current spread (Foucault et al., 2007).
Bid-ask spread determination in the FX swap market: Competition, collusion or a convention?
2018, Journal of International Financial Markets, Institutions and MoneyCitation Excerpt :Despite the differences, however, both FX swap markets seem to be similarly affected by stress, or perceived stress, in the financial system. To some degree, parallels can be drawn to the FX spot market, where bid-ask spreads have been found to widen because of higher inventory risk (Bessembinder, 1994; Glassman, 1987). However, as an FX swap involves an FX spot transaction with a simultaneous FX forward transaction in the opposite direction, contracts also contain elements of credit risk and funding liquidity risk (see, for instance, Brunnermeier and Pedersen, 2009; Baba and Packer, 2009).
Evidence of risk premiums in emerging market carry trade currencies
2016, Journal of International Financial Markets, Institutions and MoneyCitation Excerpt :On the other side, as literature relates bid-as spreads to (i) liquidity restrictions in international exchange markets (Bessembinder, 1994), (ii) higher volatility (Glassman, 1987; Boothe, 1988) and (iii) uncertainty (Bollerslev and Melvin, 1994; Louis et al., 1999), new research could incorporate bid-ask spreads as proxy for time varying risk premiums (see for example the studies from Simpson and Grossmann (2014) for developed market currencies and Grossmann and Simpson (2015) for the British Pound and Euro).
An examination of the forward prediction error of U.S. dollar exchange rates and how they are related to bid-ask spreads, purchasing power parity disequilibria, and forward premium asymmetry
2014, North American Journal of Economics and FinanceThe market microstructure approach to foreign exchange: Looking back and looking forward
2013, Journal of International Money and FinanceCitation Excerpt :Bid-ask spreads on interdealer currency trades generally conform to these predictions. Glassman's (1987) early examination of daily spreads, published by the JIMF, finds that volatility and trading volume both have a positive effect on interdealer spreads. Bollerslev and Melvin (1994), Hartmann (1998), de Jong et al. (1998) and Melvin and Yin (2000) confirm that interdealer bid-ask spreads rise with trading volumes and volatility.
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The author wishes to thank Paul Boothe and Ken White for helpful comments and Shirley Haun for research assistance. The financial support of the Social Sciences and Humanities Research Council of Canada is gratefully acknowledged.