Do Reuters spreads reflect currencies' differences in global trading activity?
AbstractA new estimate of the long-run impact of trading activity on bid-ask spreads in the foreign exchange markets is realized with a short panel containing around-the-clock Reuters quotes and global transaction volumes. Individual and time effects are accounted for in an unbalanced random effects model. In accordance with liquidity effect explanations the volume parameter is found to have a negative sign, although not at a high level of significance. The volatility parameter is positive and strongly significant. While the structural parameters of the model appear to be stable over time, the residuals are groupwise heteroscedastic. The higher standard error in 1992 might reflect the dynamic developments in the world forex market since 1989. Reuters quoting (tick) frequency is also tested as a measure of trading activity in spread estimations. The results turn out to be very similar to those with trading volumes, in particular when an instrumental variable estimator is employed to account for measurement errors or possible endogeneity problems.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of International Money and Finance.
Volume (Year): 17 (1998)
Issue (Month): 5 (October)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/30443
Other versions of this item:
- Philipp Hartmann, 1997. "Does Reuters Spreads Reflect Currencies Differences in Global Trading Activity?," FMG Discussion Papers dp265, Financial Markets Group.
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
If references are entirely missing, you can add them using this form.