FX Spreads and Dealer Competition Across the 24-Hour Trading Day
Review of Financial Studies
1999
This study examines the impact of competition on bid-ask spreads in the spot foreign exchange market. We measure competition primarily by the number of dealers active in the market and find that bid-ask spreads decrease with an increase in competition, even after controlling for the effects of volatility. The expected level of competition is time varying, highly predictable, and displays a strong seasonal component that in part is induced by geographic concentration of business activity over the 24-hour trading day. Our estimates show that the expected addition of one more competing dealer lowers the average quoted spread by 1.7%
- DOI
- 10.1093/rfs/12.1.61
- Volume
- 12 (1)
- Pages
- 61-93
- Language
- en
- Export
- BibTeX
- Sources
- openalex crossref