Empirical Market Microstructure: An Analysis Of The Brl/Us$ Exchange Rate Market Using High-Frequency Data

Márcio Poletti Laurini, Luiz Gustavo Cassilatti Furlani and Marcelo Savino Portugal

No 28, Business and Economics Working Papers from Unidade de Negocios e Economia, Insper

Abstract: This article provides an analysis of empirical microstructure for the BRL/US$ exchange rate market using high-frequency bid and ask quote data. The aims of the article are to verify the importance of the presence of asymmetric information in price dynamics, to build a model for the price discovery process and to analyze the empirical determinants of the spread between bid and ask through a conditional model that captures an asymmetric response to the spread regarding past information. The asymmetric information hypothesis is tested through a nonparametric test of conditional independence for the Markov property. A model for price discovery is built using a vector error correction between bid and ask, controlling for duration and volatility. As a result of this vector, we build an equilibrium spread deviation series, and we show that the conditional distribution of equilibrium spread deviations responds asymmetrically to the spread changes and expected conditional volatilities and durations. This is made by using the quantilogram and a quantile autoregression as tools for modeling the asymmetry eects. We relate the ndings to some facts presented in the theoretical literature on market microstructure.

Pages: 20 pages
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://repositorio.insper.edu.br/handle/11224/5744 Full text (text/html)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aap:wpaper:028

Ordering information: This working paper can be ordered from
https://repositorio. ... br/handle/11224/5744

Access Statistics for this paper

More papers in Business and Economics Working Papers from Unidade de Negocios e Economia, Insper Contact information at EDIRC.
Bibliographic data for series maintained by Biblioteca Telles ().