Liquidity problems in the FX liquid market: Ask for the "BIL"
Even though the FX market is one of the most liquid financial market, it would be an error to consider that it is immune against any liquidity problem. This paper analyzes on a long sample (2000-2009), the all set of quotes and transactions in three main currency pairs (EURJPY, EURUSD, USDJPY) on the EBS platform. To characterize the FX market liquidity, we consider the spread, the traded volume, the number of transactions and the Amihud (2002) statistic for illiquidity. We also propose the computation of a new liquidity indicator, BIL, that solely relies on price series availability. The main benefit of such measure is to be easily calculated on almost any financial market as well as to have a clear interpretation in terms of liquidity costs. Using all these advanced liquidity analyses, we finally test the accuracy of these measures to detect liquidity problems in the FX market. Our analysis, based on a signaling approach, shows that liquidity problems have arisen during specific episodes in the early 2000's and more generally during the recent financial turmoil.
|Date of creation:||2010|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.banque-france.fr/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:bfr:banfra:279. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael brassart)
If references are entirely missing, you can add them using this form.