IDEAS home Printed from https://ideas.repec.org/p/fmg/fmgdps/dp232.html
   My bibliography  Save this paper

Trading Volumes and Transaction Costs in the Foreign Market - Evidence from Daily Dollar-Yen Spot Data

Author

Listed:
  • Philipp Hartmann

Abstract

A Generalized Method of Moments estimation of the determinants of dollar/yen bid-ask spreads is undertaken. In particular, a long time-series of daily spot foreign exchange trading volumes is used for the first time. In line with standard spread models and volume theories, it can be shown that unpredictable foreign exchange turnover (a measure of the rate of information arrival) increases spreads, while predictable turnover decreases them. both effects are strongly significant when employing sport turnover instead of proxies like forward turnover as in previous studies (Bessembinder, 1994). The results are also found to be robust when unpredictable Reuters quoting frequency is used as an instrument for unpredictable trading volumes to cope with their endogeneity. Spread estimations with plain (non-decomposed) volumes are rejected as misspecified. Finally, there is evidence for the conditional heteroscedasticity of unpredictable spot foreign exchange volumes.

Suggested Citation

  • Philipp Hartmann, 1996. "Trading Volumes and Transaction Costs in the Foreign Market - Evidence from Daily Dollar-Yen Spot Data," FMG Discussion Papers dp232, Financial Markets Group.
    • Handle: RePEc:fmg:fmgdps:dp232
    as

    Download full text from publisher

    File URL: http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/fmg_pdfs/dp232.pdf
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Benassy-Quere, A. & Larribeau, S. & MacDonald, R., 1999. "Models of Exchange Rate Expectations: Heterogeneous Evidence from Panel Data," Papers 99-02, Paris X - Nanterre, U.F.R. de Sc. Ec. Gest. Maths Infor..
    2. Hartmann, Philipp, 1998. "Do Reuters spreads reflect currencies' differences in global trading activity?," Journal of International Money and Finance, Elsevier, vol. 17(5), pages 757-784, October.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fmg:fmgdps:dp232. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: The FMG Administration (email available below). General contact details of provider: http://www.lse.ac.uk/fmg/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.