Were Bid-Ask Spreads in the Foreign Exchange Market Excessive During the Asian Crisis?

32 Pages Posted: 18 Mar 2005

See all articles by Torbjorn Becker

Torbjorn Becker

affiliation not provided to SSRN

Amadou Nicolas Racine Sy

International Monetary Fund (IMF) - International Capital Markets Department; Brookings Institution

Date Written: February 2005

Abstract

Bid-ask spreads for Asian emerging market currencies increased sharply during the Asian crisis. A key question is whether such wide spreads were excessive or explained by models of bid-ask spreads. Precrisis estimates of standard models show that spreads during the crisis were in most cases tighter than spreads predicted by the models and there are few cases of excessive spreads. The result is largely explained by the substantial increase in exchange rate volatility during the crisis and to some extent by the level change. The empirical models have greater explanatory power for emerging - than for mature-market currencies.

Keywords: Foreign exchange, market microstructure, bid-ask spreads, Asian crisis

JEL Classification: F31, G14, G15

Suggested Citation

Becker, Torbjorn and Sy, Amadou Nicolas Racine, Were Bid-Ask Spreads in the Foreign Exchange Market Excessive During the Asian Crisis? (February 2005). IMF Working Paper No. 05/34, Available at SSRN: https://ssrn.com/abstract=677425

Torbjorn Becker (Contact Author)

affiliation not provided to SSRN

No Address Available

Amadou Nicolas Racine Sy

International Monetary Fund (IMF) - International Capital Markets Department ( email )

700 19th Street NW
Room 9-548
Washington, DC 20431
United States
202-623-8651 (Phone)
202-589-8561 (Fax)

Brookings Institution ( email )

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

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