Bid-ask spreads and volatility in the foreign exchange market. An empirical analysis
Consistent with the implications from a simple asymmetric information model for the bid-ask spread, we present empirical evidence that the size of the bid-ask spread in the foreign exchange market is positively related to the underlying exchange rate uncertainty. The estimation results are based on an ordered probit analysis that captures the discreteness in the spread distribution, with the uncertainty of the spot exchange rate being quantified through a GARCH type model. The data sets consists of more than 300,000 continuously recorded Deutschemark/dollar quotes over the period from April 1989 to June 1989. © 1994.
Published Version (Please cite this version)10.1016/0022-1996(94)90008-6
Publication InfoBollerslev, T; & Melvin, M (1994). Bid-ask spreads and volatility in the foreign exchange market. An empirical analysis. Journal of International Economics, 36(3-4). pp. 355-372. 10.1016/0022-1996(94)90008-6. Retrieved from https://hdl.handle.net/10161/1958.
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Juanita and Clifton Kreps Distinguished Professor of Economics, in Trinity College of Arts and Sciences
Professor Bollerslev conducts research in the areas of time-series econometrics, financial econometrics, and empirical asset pricing finance. He is particularly well known for his developments of econometric models and procedures for analyzing and forecasting financial market volatility. Much of Bollerslev’s recent research has focused on the analysis of newly available high-frequency intraday, or tick-by-tick, financial data and so-called realized volatility measures, macroeconomic news annou