Foreign exchange markets, behavior of options volatility and bid-ask spread around macroeconomic announcements
The purpose of this study is to examine the role of options volatility and bid-ask spread as microstructural variables in determining whether the foreign exchange market’s price formation process in response to macroeconomic announcements is characterised by changes in risk perception and transactio...
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| Format: | Article |
| Language: | English |
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Taylor & Francis Group
2022-12-01
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| Series: | Cogent Economics & Finance |
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| Online Access: | https://www.tandfonline.com/doi/10.1080/23322039.2022.2095772 |
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| author | Muhammad Ishfaq Muhammad Usman Arshad Muhammad Kashif Durrani Muhammad Saleem Ashraf Ahmad Qammar |
| author_facet | Muhammad Ishfaq Muhammad Usman Arshad Muhammad Kashif Durrani Muhammad Saleem Ashraf Ahmad Qammar |
| author_sort | Muhammad Ishfaq |
| collection | DOAJ |
| description | The purpose of this study is to examine the role of options volatility and bid-ask spread as microstructural variables in determining whether the foreign exchange market’s price formation process in response to macroeconomic announcements is characterised by changes in risk perception and transaction costs. The findings suggest that behavioural characteristics of market participants appear to trump macroeconomic considerations. The volatility indices and bid-ask spreads were found more sensitive to announcements than forex returns, which directly imply weak assimilation of common knowledge into exchange rates. The forex returns, bid-ask spread, and volatility indices demonstrated less vulnerability towards Chinese announcements than the USA, UK, Japan, and Euro. Moreover, findings distinctly signify the role of China as a global liquidity provider by reducing trading costs in the foreign exchange markets. The implications suggest that core macroeconomic models should incorporate agents’ heterogeneous expectations based on risk perceptions than the order flow approach. |
| format | Article |
| id | doaj-art-057342acef1742bf8a99571509ec8e90 |
| institution | OA Journals |
| issn | 2332-2039 |
| language | English |
| publishDate | 2022-12-01 |
| publisher | Taylor & Francis Group |
| record_format | Article |
| series | Cogent Economics & Finance |
| spelling | doaj-art-057342acef1742bf8a99571509ec8e902025-08-20T02:16:49ZengTaylor & Francis GroupCogent Economics & Finance2332-20392022-12-0110110.1080/23322039.2022.2095772Foreign exchange markets, behavior of options volatility and bid-ask spread around macroeconomic announcementsMuhammad Ishfaq0Muhammad Usman Arshad1Muhammad Kashif Durrani2Muhammad Saleem Ashraf3Ahmad Qammar4School of Commerce and Accountancy, Faculty of Economics and Management Sciences, Minhaj University, Lahore, PakistanDepartment of Commerce, University of Gujrat- Hafiz Hayat Campus, Gujrat, PakistanSchool of Business and Management Sciences, Minhaj University, Lahore, PakistanSchool of Islamic Economics, Banking and Finance (SIEBF), Minhaj University, Lahore, PakistanDepartment of Management Sciences, COMSATS University, Islamabad, PakistanThe purpose of this study is to examine the role of options volatility and bid-ask spread as microstructural variables in determining whether the foreign exchange market’s price formation process in response to macroeconomic announcements is characterised by changes in risk perception and transaction costs. The findings suggest that behavioural characteristics of market participants appear to trump macroeconomic considerations. The volatility indices and bid-ask spreads were found more sensitive to announcements than forex returns, which directly imply weak assimilation of common knowledge into exchange rates. The forex returns, bid-ask spread, and volatility indices demonstrated less vulnerability towards Chinese announcements than the USA, UK, Japan, and Euro. Moreover, findings distinctly signify the role of China as a global liquidity provider by reducing trading costs in the foreign exchange markets. The implications suggest that core macroeconomic models should incorporate agents’ heterogeneous expectations based on risk perceptions than the order flow approach.https://www.tandfonline.com/doi/10.1080/23322039.2022.2095772Foreign exchange marketoptions volatilitymacroeconomic announcementsVARE02C58 |
| spellingShingle | Muhammad Ishfaq Muhammad Usman Arshad Muhammad Kashif Durrani Muhammad Saleem Ashraf Ahmad Qammar Foreign exchange markets, behavior of options volatility and bid-ask spread around macroeconomic announcements Cogent Economics & Finance Foreign exchange market options volatility macroeconomic announcements VAR E02 C58 |
| title | Foreign exchange markets, behavior of options volatility and bid-ask spread around macroeconomic announcements |
| title_full | Foreign exchange markets, behavior of options volatility and bid-ask spread around macroeconomic announcements |
| title_fullStr | Foreign exchange markets, behavior of options volatility and bid-ask spread around macroeconomic announcements |
| title_full_unstemmed | Foreign exchange markets, behavior of options volatility and bid-ask spread around macroeconomic announcements |
| title_short | Foreign exchange markets, behavior of options volatility and bid-ask spread around macroeconomic announcements |
| title_sort | foreign exchange markets behavior of options volatility and bid ask spread around macroeconomic announcements |
| topic | Foreign exchange market options volatility macroeconomic announcements VAR E02 C58 |
| url | https://www.tandfonline.com/doi/10.1080/23322039.2022.2095772 |
| work_keys_str_mv | AT muhammadishfaq foreignexchangemarketsbehaviorofoptionsvolatilityandbidaskspreadaroundmacroeconomicannouncements AT muhammadusmanarshad foreignexchangemarketsbehaviorofoptionsvolatilityandbidaskspreadaroundmacroeconomicannouncements AT muhammadkashifdurrani foreignexchangemarketsbehaviorofoptionsvolatilityandbidaskspreadaroundmacroeconomicannouncements AT muhammadsaleemashraf foreignexchangemarketsbehaviorofoptionsvolatilityandbidaskspreadaroundmacroeconomicannouncements AT ahmadqammar foreignexchangemarketsbehaviorofoptionsvolatilityandbidaskspreadaroundmacroeconomicannouncements |