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Were bid-ask spreads in the FX market excessive during the Asian crisis?

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  • Becker, Torbjorn
  • Sy, Amadou

Abstract

Bid-ask spreads for Asian emerging market currencies increased sharply during the Asian crisis. A key question is whether such wide spreads were excessive or explained by models of bid-ask spreads. Precrisis estimates of standard models show that spreads during the crisis were in most cases tighter than spreads predicted by the models and there are few cases of excessive spreads. The result is largely explained by the substantial increase in exchange rate volatility during the crisis and to some extent by the level change. The empirical models have greater explanatory power for emerging- than for mature-market currencies.

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Bibliographic Info

Article provided by Elsevier in its journal International Review of Financial Analysis.

Volume (Year): 15 (2006)
Issue (Month): 4-5 ()
Pages: 434-449

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Handle: RePEc:eee:finana:v:15:y:2006:i:4-5:p:434-449

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Web page: http://www.elsevier.com/locate/inca/620166

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References

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Cited by:
  1. Ligon, James A. & Liu, Hao-Chen, 2013. "The relation of trade size and price contribution in a traditional foreign exchange brokered market," Pacific-Basin Finance Journal, Elsevier, vol. 21(1), pages 1024-1045.
  2. Khemraj, Tarron & Pasha, Sukrishnalall, 2008. "Foreign exchange market bid-ask spread and market power in an underdeveloped economy," MPRA Paper 11422, University Library of Munich, Germany.

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