Analysis of Singapore's Foreign Exchange Market Microstructure

Analysis of Singapore's Foreign Exchange Market Microstructure

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...

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Bibliographic Details
Main Author: WAN, Chee Wai
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2011
Subjects:
Singapore
market microstructure
ordered probit
foreign exchange
ordered response model
ordered logit
Asian Studies
Finance
Public Economics
Online Access:https://ink.library.smu.edu.sg/etd_coll/75
https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1074&context=etd_coll
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Institution: Singapore Management University
Language: English
Description
Summary: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.

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