The Components of Electronic Inter-Dealer Spot FX Bid-Ask Spreads

16 Pages Posted: 11 Dec 2007

See all articles by Frank McGroarty

Frank McGroarty

University of Southampton - Southampton Business School

Owain Ap Gwilym

Bangor Business School

Date Written: 2007-03

Abstract

This paper applies an established bid-ask spread decomposition model to the inter-dealer spot foreign exchange market. In addition, the paper presents and tests a modified decomposition model which is specifically adapted to the features of order-driven markets and which is found to produce more plausible results than the original model. Price clustering is introduced as a new explanatory factor within this framework and is shown to be vitally important in understanding the composition of bid-ask spreads in this market.

Suggested Citation

McGroarty, Frank and ap Gwilym, Owain, The Components of Electronic Inter-Dealer Spot FX Bid-Ask Spreads (2007-03). Journal of Business Finance & Accounting, Vol. 34, Issue 9-10, pp. 1635-1650, November/December 2007. Available at SSRN: https://ssrn.com/abstract=1065850 or http://dx.doi.org/10.1111/j.1468-5957.2007.02051.x

Frank McGroarty (Contact Author)

University of Southampton - Southampton Business School ( email )

Southampton, SO17 1BJ
United Kingdom

Owain Ap Gwilym

Bangor Business School ( email )

Bangor Business School
College Road
Gwynedd LL57 2DG, Wales LL57 2DG
United Kingdom

HOME PAGE: http://www.bangor.ac.uk/business/staff/owain_ap_gwilym.php.en

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