FX Spreads and Dealer Competition across the 24-Hour Trading Day.
This study examines the impact of competition on bid-ask spreads in the spot foreign exchange market. We measure competition primarily by the number of dealers active in the market and find that bid-ask spreads decrease with an increase in competition, even after controlling for the effects of volatility. The expected level of competition is time varying, highly predictable, and displays a strong seasonal component that in part is induced by geographic concentration of business activity over the 24-hour trading day. Our estimates show that the expected addition of one more competing dealer lowers the average quoted spread by 1.7%. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.
Year of publication: |
1999
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Authors: | Huang, Roger D ; Masulis, Ronald W |
Published in: |
Review of Financial Studies. - Society for Financial Studies - SFS. - Vol. 12.1999, 1, p. 61-93
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Publisher: |
Society for Financial Studies - SFS |
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