The intraday bid-ask spread behaviour of the JPY/USD exchange rate in the EBS electronic brokerage system

Mingshu Hua and Chen-Yu Li

Applied Economics, 2011, vol. 43, issue 16, 2003-2013

Abstract: Using a sophisticated tool of the Periodic-Generalized Autoregressive Conditional Heteroscedastic (P-GARCH) model, this article investigates the market institutional effects of the determining role of trading activities and exchange rate volatility on the intraday behaviour of the 15-minute JPY/USD exchange rate bid-ask spreads in the Electronic Broking Service (EBS) of electronic brokerage market for the period from 1 January 2003 to 31 December 2005. We find that the exchange rate volatility both significantly and positively affects the bid-ask spreads, while the number of deals and quotation changes negatively affect the bid-ask spreads. These results are similar to those of past studies. We also find that a U-shaped pattern exists in the Tokyo trading hours and an inverted U-shaped pattern in the London trading hours, in addition to a round clock inverted U-shaped pattern of spread volatility. This inverted U-shaped pattern may be caused by unexpected news arrivals. The spread behaviour of the EBS global electronic broking market is not different from that of other electronic interdealer quotation markets and electronic broking markets.

Date: 2011
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DOI: 10.1080/00036840902967576

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