Bid-ask spreads and volatility in the foreign exchange market. An empirical analysis

Journal Article (Journal Article)

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.

Full Text

Duke Authors

Cited Authors

  • Bollerslev, T; Melvin, M

Published Date

  • January 1, 1994

Published In

Volume / Issue

  • 36 / 3-4

Start / End Page

  • 355 - 372

International Standard Serial Number (ISSN)

  • 0022-1996

Digital Object Identifier (DOI)

  • 10.1016/0022-1996(94)90008-6

Citation Source

  • Scopus