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Bid—ask spreads and volatility in the foreign exchange market: An empirical analysis
Tim Bollerslev,Michael Melvin +1 more
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In this paper, the authors 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, based on an ordered probit analysis that captures discreteness in the spread distribution, with the uncertainty of the spot exchange rate being quantified through a GARCH type model.About:
This article is published in Journal of International Economics.The article was published on 1994-05-01. It has received 332 citations till now. The article focuses on the topics: Exchange rate & Foreign exchange market.read more
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Journal ArticleDOI
Intraday periodicity and volatility persistence in financial markets
TL;DR: In this article, a formal integration of standard volatility models with market microstructure variables to allow for a more comprehensive empirical investigation of the fundamental determinants behind the volatility clustering phenomenon is presented.
Book
The Economics of Exchange Rates
TL;DR: In the last few decades exchange rate economics has seen a number of developments, with substantial contributions to both the theory and empirics of exchange rate determination as mentioned in this paper. But, while our understanding of exchange rates has significantly improved, a few challenges and open questions remain in the exchange rate debate, enhanced by events including the launch of the Euro and the large number of recent currency crises.
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The Microstructure Approach to Exchange Rates
TL;DR: In this paper, the authors focus on the economics of financial information and how microstructure tools help to clarify the types of information most relevant to exchange rates, and show how exchange-rate behavior previously thought to be particularly puzzling can be explained using the micro-structure approach.
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Deutsche Mark–Dollar Volatility: Intraday Activity Patterns, Macroeconomic Announcements, and Longer Run Dependencies
TL;DR: In this paper, a detailed characterization of the volatility in the deutsche mark-dollar foreign exchange market using an annual sample of five-minute returns is provided, which captures the intraday activity patterns, the macroeconomic announcements, and the volatility persistence known from daily returns.
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What good is a volatility model
Robert F. Engle,Andrew J. Patton +1 more
TL;DR: In this article, the authors outline some stylized facts about volatility that should be incorporated in a model: pronounced persistence and mean-reversion, asymmetry such that the sign of an innovation also affects volatility and the possibility of exogenous or pre-determined variables influencing volatility.
References
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Book
Limited-Dependent and Qualitative Variables in Econometrics
TL;DR: In this article, the authors present a survey of the use of truncated distributions in the context of unions and wages, and some results on truncated distribution Bibliography Index and references therein.
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Bid, ask and transaction prices in a specialist market with heterogeneously informed traders
TL;DR: The presence of traders with superior information leads to a positive bid-ask spread even when the specialist is risk-neutral and makes zero expected profits as discussed by the authors, and the expectation of the average spread squared times volume is bounded by a number that is independent of insider activity.
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ARCH modeling in finance: A review of the theory and empirical evidence
TL;DR: An overview of some of the developments in the formulation of ARCH models and a survey of the numerous empirical applications using financial data can be found in this paper, where several suggestions for future research, including the implementation and tests of competing asset pricing theories, market microstructure models, information transmission mechanisms, dynamic hedging strategies, and pricing of derivative assets, are also discussed.
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Econometric Issues in the Analysis of Regressions with Generated Regressors.
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Return Volatility and Trading Volume: An Information Flow Interpretation of Stochastic Volatility
TL;DR: This paper developed an empirical return volatility-trading volume model from a microstructure framework in which informational asymmetries and liquidity needs motivate trade in response to information arrivals, and the resulting system modifies the so-called "Mixture of Distribution Hypothesis" (MDH).