using transactions data. We propose a new market microstructure theory which we call derivative hedge theory, in which … volume as a measure of liquidity and supports the derivative hedge theory. Option market spreads are positively related to … spreads in the underlying market, again supporting our theory. However, option market duration does affect option market …

The paper studies the effect of the market's perceived exchange rate volatility on bid-ask spreads. The anticipated … volatility is extracted from currency options data. An increase in the perceived volatility is found to widen bid-ask spreads … estimate of the effect of the volatility on the spreads. Although the spread-volatility relation implied by the option model of …

It is a common practice in finance to estimate volatility from the sum of frequently-sampled squared returns. However …-time assumption on the underlying returns. Under our framework, it becomes clear why and where the usual' volatility estimator fails …

examines how the bid-ask spread and conditional volatility in the yen/dollar foreign exchange market changed around the time of … 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 …

This paper develops mew robust inference procedures for analyzing the intraday return volatility patterns that … constitute a focal point of much market microstructure theory. Our empirical analysis is motivated by the recent lifting of …, Lyons, and Melvin (1998) (ILM) argue that this deregulation resulted in a highly significant shift in the volatility pattern …