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Bid-ask spread and order size in the foreign exchange market: an empirical investigation

  • Liang Ding

    (Department of Economics, Macalester College, USA)

This article empirically examines the relationship between order sizes and spreads in the foreign exchange (FX) market based on a FX dealer's quotes. It is found that spreads are independent of order sizes in the inter-dealer market, but they are negatively correlated in the customer market. Copyright © 2008 John Wiley & Sons, Ltd.

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Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 14 (2009)
Issue (Month): 1 ()
Pages: 98-105

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Handle: RePEc:ijf:ijfiec:v:14:y:2009:i:1:p:98-105
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  1. Bjonnes, Geir Hoidal & Rime, Dagfinn, 2005. "Dealer behavior and trading systems in foreign exchange markets," Journal of Financial Economics, Elsevier, vol. 75(3), pages 571-605, March.
  2. Richard K. Lyons., 1993. "Tests of Microstructural Hypotheses in the Foreign Exchange Market," Research Program in Finance Working Papers RPF-230, University of California at Berkeley.
  3. Bollerslev, Tim & Melvin, Michael, 1994. "Bid--ask spreads and volatility in the foreign exchange market : An empirical analysis," Journal of International Economics, Elsevier, vol. 36(3-4), pages 355-372, May.
  4. Martin D. D. Evans and Richard K. Lyons., 1999. "Order Flow and Exchange Rate Dynamics," Research Program in Finance Working Papers RPF-288, University of California at Berkeley.
  5. Admati, Anat R & Pfleiderer, Paul, 1988. "Selling and Trading on Information in Financial Markets," American Economic Review, American Economic Association, vol. 78(2), pages 96-103, May.
  6. Biais, Bruno, 1993. " Price Information and Equilibrium Liquidity in Fragmented and Centralized Markets," Journal of Finance, American Finance Association, vol. 48(1), pages 157-85, March.
  7. Osler, Carol L. & Mende, Alexander & Menkhoff, Lukas, 2011. "Price discovery in currency markets," Journal of International Money and Finance, Elsevier, vol. 30(8), pages 1696-1718.
  8. Huang, Roger D & Masulis, Ronald W, 1999. "FX Spreads and Dealer Competition across the 24-Hour Trading Day," Review of Financial Studies, Society for Financial Studies, vol. 12(1), pages 61-93.
  9. Thomas Ho & Hans Stoll, . "Optimal Dealer Pricing Under Transactions and Return Uncertainty," Rodney L. White Center for Financial Research Working Papers 27-79, Wharton School Rodney L. White Center for Financial Research.
  10. Hans R. Stoll, . "The Supply of Dealer Services in Securities Markets," Rodney L. White Center for Financial Research Working Papers 2-78, Wharton School Rodney L. White Center for Financial Research.
  11. Payne, Richard, 2003. "Informed trade in spot foreign exchange markets: an empirical investigation," Journal of International Economics, Elsevier, vol. 61(2), pages 307-329, December.
  12. Hartmann, Philipp, 1999. "Trading volumes and transaction costs in the foreign exchange market: Evidence from daily dollar-yen spot data," Journal of Banking & Finance, Elsevier, vol. 23(5), pages 801-824, May.
  13. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
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