Japan's Big Bang and the Transformation of Financial Markets

27 Pages Posted: 28 Apr 2000 Last revised: 26 Oct 2022

See all articles by Takatoshi Ito

Takatoshi Ito

University of Tokyo - Faculty of Economics; National Bureau of Economic Research (NBER); Ministry of Finance, Tokyo

Michael Melvin

CESifo (Center for Economic Studies and Ifo Institute); University of California, San Diego (UCSD) - Rady School of Management

Date Written: July 1999

Abstract

A first step in the 'big bang' markets was the deregulation of the foreign exchange market on April 1, 1998. This paper examines how the bid-ask spread and conditional volatility in the yen/dollar foreign exchange market changed around the time of the deregulation. Intra-day data are analyzed with the following results: (1) Holding constant the effects of volume and volatility, the deregulation was associated with a convergence of Japanese quoted spreads toward those of other banks. (2) Modeling the persistence in volatility reveals that deregulation lowered conditional volatility.

Suggested Citation

Ito, Takatoshi and Melvin, Michael and Melvin, Michael, Japan's Big Bang and the Transformation of Financial Markets (July 1999). NBER Working Paper No. w7247, Available at SSRN: https://ssrn.com/abstract=202431

Takatoshi Ito (Contact Author)

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Michael Melvin

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