Working Paper: NBER ID: w7247
Authors: Takatoshi Ito; Michael Melvin
Abstract: A first step in the 'big bang' markets was the deregulation of the foreign exchange market on April 1, 1998. This paper examines how the bid-ask spread and conditional volatility in the yen/dollar foreign exchange market changed around the time of the deregulation. Intra-day data are analyzed with the following results: (1) Holding constant the effects of volume and volatility, the deregulation was associated with a convergence of Japanese quoted spreads toward those of other banks. (2) Modeling the persistence in volatility reveals that deregulation lowered conditional volatility.
Keywords: No keywords provided
JEL Codes: G1; F3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Deregulation of the foreign exchange market (F31) | Convergence of bid-ask spreads in the yen-dollar foreign exchange market (F31) |
| Deregulation of the foreign exchange market (F31) | Decrease in conditional volatility of the exchange rate market (F31) |