Analysis of Singapore's Foreign Exchange Market Microstructure

• 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
• Institution: Singapore Management University

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.