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.
Singapore, market microstructure, ordered probit, foreign exchange, ordered response model, ordered logit
MSc in Economics
Asian Studies | Finance | Public Economics
TSE, Yiu Kuen
WAN, Chee Wai.
Analysis of Singapore's Foreign Exchange Market Microstructure. (2011). Dissertations and Theses Collection (Open Access).
Available at: http://ink.library.smu.edu.sg/etd_coll/75