This paper analyses the Singapore foreign exchange market from a microstructure approach. Specifically, by applying and modifying the empirical methodology designed by Bollerslev and Melvin (1994), we examine the relationship between bid-ask spreads and the underlying volatility of the USD/SGD. Our data set comprises high-frequency USD/SGD tick data of three separate years (April-June 1989, April-May 2006, April-May 2009). We found that for the USD/SGD: i) the size of bid-ask spreads are positively related to the underlying exchange rate volatility; ii) the magnitude of the dependence on underlying volatility increases as tick volume increases; and iii) the size of the bid-ask spreads may also be positively related to the directional movement of exchange rates.
|Advisor:||Tse, Yiu Kuen|
|Commitee:||Hoon, Hian Teck, Tay, Anthony|
|School:||Singapore Management University (Singapore)|
|Department:||School of Economics|
|School Location:||Republic of Singapore|
|Source:||MAI 50/03M, Masters Abstracts International|
|Keywords:||Foreign exchange, Market microstructure, Ordered logit, Ordered probit, Ordered response model, Singapore|
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