文档介绍：FX Spreads and petition
across the 24-Hour Trading Day
Roger D. Huang
Ronald W. Masulis
Vanderbilt University
This study examines the impact petition on bid-ask spreads in the spot
foreign exchange market. We petition primarily by the number of
dealers active in the market and find that bid-ask spreads decrease with an increase
petition, even after controlling for the effects of volatility. The expected
level petition is time varying, highly predictable, and displays a strong
ponent that in part is induced by geographic concentration of busi-
ness activity over the 24-hour trading day. Our estimates show that the expected
addition of one peting dealer lowers the average quoted spread by %.
The foreign exchange (FX) market is highly liquid, economically im-
portant, and associated with a bination of features which makes
studying bid-ask spread determination in this environment attractive. The
FX market is open 24 hours a day, 7 days a week with peti-
tion and trading activity varying greatly over a calendar day, as the level
of business activity in different geographic regions ebb and flow. The FX
market also has a decentralized multidealer structure, where dealers and
customers have oligopolistic relationships. FX dealers in major currencies
have access to well-developed interdealer markets, on average handle large
trading volume, and operate in a largely unregulated
The purpose of this article is to examine the effects of petition
on bid-ask spreads in the spot FX market. The impact of petition
on bid-ask spreads has received scant attention in empirical studies of the FX
This article was previously circulated as “Spreads, petition, and Market Regimes: A Market
Microstructure Analysis of FX Trading.” We would like to express our appreciation to Larry Glosten and an
anonymous referee for their ments. We also want to thank William Arnold, Charles Goodhart,
Maureen O’Hara, Hans Stoll, and Rene St