Understanding FX Liquidity

Item Type Monograph (Working Paper)
Abstract

We provide a comprehensive study of the liquidity of spot foreign exchange (FX) rates over more than two decades and a large cross-section of currencies. First, we show that FX liquidity can be accurately measured with daily and readily-available data. Second, we demonstrate that FX liquidity declines with funding constraints and global risk, supporting theoretical models relating funding and market liquidity. In these distressed circumstances, liquidity tends to evaporate more for developed
and riskier currencies. Finally, we show stronger comovements of FX liquidities in distressed markets, especially when funding is constrained, volatility is high, and FX speculators incur losses.

Authors Karnaukh, Nina; Ranaldo, Angelo & Söderlind, Paul
Language English
Keywords exchange rates, liquidity, transaction costs, commonality, low-frequency data
Subjects business studies
Institute/School ?? SoF Pr Inst ??
s/bf - Swiss Institute of Banking and Finance
HSG Classification contribution to scientific community
Refereed No
Date 2014
Publisher SoF Working Paper Series
Place of Publication St. Gallen
Series Name SoF Working Paper Series
Number 2013/15
Depositing User Nina Karnaukh
Date Deposited 24 Sep 2013 11:26
Last Modified 20 Feb 2018 01:20
URI: https://www.alexandria.unisg.ch/publications/225842

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Citation

Karnaukh, Nina; Ranaldo, Angelo & Söderlind, Paul: Understanding FX Liquidity. SoF Working Paper Series, 2014, 2013/15.

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https://www.alexandria.unisg.ch/id/eprint/225842
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