Exchange Rate Risk and the Bid-Ask Spread: A Seven Country Comparison
AbstractThis paper studies the determination of exchange market transaction costs. Using a large data set including seven currencies, it provide s empirical support for the theoretical prediction of a positive relationship between the level of uncertainty regarding future prices and current transaction costs. In contrast to most previous work, it considers explicitly the problem of omitted transactions volume, showing that while estimators are les s efficient and potentially inconsistent in the absence of the unavailable variable, the direction of potential coefficient bias is such that hypothesis tests regarding the importance of uncertainty are rendered more conservative. Copyright 1988 by Oxford University Press.
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Bibliographic InfoArticle provided by Western Economic Association International in its journal Economic Inquiry.
Volume (Year): 26 (1988)
Issue (Month): 3 (July)
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- Gianluca Marcato & Charles Ward, 2007.
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- Bollerslev, Tim & Domowitz, Ian & Wang, Jianxin, 1997. "Order flow and the bid-ask spread: An empirical probability model of screen-based trading," Journal of Economic Dynamics and Control, Elsevier, vol. 21(8-9), pages 1471-1491, June.
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- Alex Frino & Elvis Jarnecic & Hui Zheng, 2010. "Activity in futures: does underlying market size relate to futures trading volume?," Review of Quantitative Finance and Accounting, Springer, vol. 34(3), pages 313-325, April.
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