A span of continuous trades and liquidity dynamics in foreign exchange markets. (30th December 2020)

• Record Type: Journal Article
• Authors: Chien, Chih‐Chung; Chen, Shikuan; Chang, Ming‐Jen
• Is Part Of: International journal of finance & economics. Volume 28:Number 1(2023)
• Page Start: 144
• Page End: 168
• Publication Date: 2020-12-30
• Subjects: bid‐ask spread -- foreign exchange market -- market liquidity -- span of continuous trade; International finance -- Periodicals; Economics -- Periodicals; 332
• DOI: 10.1002/ijfe.2410
• Languages: English
• ISSNs: 1076-9307

Abstract

Abstract: This study incorporates the spans of sequences of continuous trades and reversal trades to investigate whether the currency liquidity is varying with the span of continuous trades or reversal trades. We highlight the dependency between the span of continuous trades and the realized bid‐ask spread to explain the currency liquidity dynamics using high‐frequency foreign exchange data. Our findings show that the spans of continuous trades play an important role in determining the market liquidity because a larger span of a continuous sequence puts a drain on the market liquidity and thereby consumes the funding liquidity, eventually increasing the bid‐ask spread.