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Exchange rate variability, market activity and heterogeneity

Genaro Sucarrat and Dagfinn Rime ()

UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía

Abstract: We study the role played by geographic and bank-size heterogeneity in the relation between exchange rate variability and market activity. We find some support for the hypothesis that increases in short-term global interbank market activity, which can be interpreted as due to variation in information arrival, increase variability. However, our results do not suggest that local short-term activity increases variability. With respect to long-term market activity, which can be interpreted as a measure of liquidity, we find that large and small banks have opposite effects. Specifically, our results suggest that the local group of large banks' liquidity increases variability, whereas the local group of small banks' liquidity reduces variability.

Keywords: Exchange; rate; variability; Heterogeneity; Volume-volatility; relation; Liquidity (search for similar items in EconPapers)
JEL-codes: C53 F31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-ifn
Date: 2007-10
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