The bid-ask spread refers to the tightness dimension of liquidity and can be used as a proxy for transaction costs. Despite importance in financial literature, few studies have investigated its forecastability. We propose new methodology predict bid ask by combining density forecasts two types models: Multiplicative Errors Models ARMA-GARCH models. Our method is employed effective intra-day ser...

An asymmetric information model of the bid-ask spread is developed for foreign exchange market subject to occasional government interventions. Traditional tests of the unbiasedness of the forward rate as a predictor of the future spot rate are shown to be inconsistent when the rates are measured as the average of their respective bid and ask quotes. Larger bid-ask spreads on Fridays are documen...

This paper examines the intraday behavior of market liquidity in an order-driven market. Along with previous studies, we show that the U-shaped intraday pattern of spread does not depend on the market architecture. We also find that bid-ask spread and market depth are two dimensions of market liquidity. Market liquidity is inversely related to price volatility. We also investigate the impacts o...

This paper applies an established bid-ask spread decomposition model to short-term interest rate (STIR) futures to assess the impact of both the migration from floor to electronic trading and European Monetary Union (EMU). Additionally, the paper presents and tests a modified decomposition model which is specifically adapted to the features of order-driven markets. The latter model provides muc...

This paper applies an established bid-ask spread decomposition model to spot foreign exchange market in order to assess the impact of European Monetary Union (EMU). Additionally, the paper presents and tests a modified decomposition model which is specifically adapted to the features of order-driven markets. The latter model provides much improved performance. Price clustering is introduced as ...