Understanding FX Liquidity
Type
conference paper
Date Issued
2015-01-04
Author(s)
Abstract
Previous studies of liquidity in the foreign exchange (FX) market span short time periods or focus on specific measures of liquidity. In contrast, we provide the first comprehensive study of FX liquidity and commonality over more than two decades and a cross-section of forty exchange rates. We show that FX liquidity deteriorates with risk in FX, stock, bond, and money markets, and it comoves with liquidity in bond and stock markets. We also show that commonality in FX liquidities increases in distressed markets and it is stronger for countries with high-quality institutions, financial integration, and price stability.
Language
English
Keywords
exchange rates
liquidity
transaction costs
commonality
low-frequency
data
data
HSG Classification
contribution to scientific community
Refereed
Yes
Event Title
2015 American Finance Association (AFA) Annual Meeting
Event Location
Boston USA
Event Date
03.-05.01.2015
Subject(s)
Eprints ID
238818