The Determinants of Bid-Ask Spread in the Guyanese FX Market

Khemraj, Tarron; Pasha, Sukrishnalall

doi:10.1353/jda.2014.0028

Cited by 3 publications

(2 citation statements)

References 25 publications

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“…They find that spreads narrow as competition increases, even after volatility effects are controlled for. Khemraj and Pasha (2014) find a positive association among order flow, risk, liquidity, and the bid-ask spread as foreign exchange market participants compete for limited foreign exchange (similar conclusions are reached in Moore and Craigwell, 2002). This is relevant to many small post-socialist economies, and Armenia, where the foreign exchange market is dominated by commercial banks and the central bank.…”

Section: The Conceptual and Empirical Contextsupporting

confidence: 69%

The foreign exchange regime in a small open economy: Armenia and beyond

Gevorkyan

2017

JES

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Purpose Offering an example of a small open developing economy, the purpose of this paper is to explore the reasons for relative stability in Armenia’s foreign exchange market. Relying on a single currency and derived cross-currency exchange rates, the paper models short-term effects between exchange market pressure and financial and macroeconomic factors. Design/methodology/approach Following a literature review, the paper sets the macroeconomic context with an initial variance comparison of standard currency pairs and derived cross-currency exchange rates. Then, the core analysis is carried out with a vector error correction model, focusing on short-term cross-dynamics in monthly data. The orthogonal impulse response function analyses help solidify and further inform relevant conclusions. Findings Three broad factors influence Armenia’s foreign exchange market: external push factors; domestic banking sector competition, and foreign currency risk perceptions; and domestic macroeconomic and dual, cross-pair, exchange rate target priorities. The central bank’s implicit management of the foreign exchange market’s expectations, pull factor, is consistent with trader market power’s contribution to lower volatility. Yet, the risk of financial and real-sector decoupling remains. Originality/value The results are relevant for emerging markets attempting to leverage the global liquidity and low interest rates, while being exposed to external pressures in the post-crisis environment, in which international reserves may be scarce while currency stability is an implied priority. This study can be further adapted to a more comprehensive structural short-term analysis of currency determination or similar dynamics in other small open economies.

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Section: The Conceptual and Empirical Contextsupporting

confidence: 69%

The foreign exchange regime in a small open economy: Armenia and beyond

Gevorkyan

2017

JES

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“…This constitutes a form of market discipline in these dense communities, which is essential given that the sole means of economic viability for brokers is to levy bid-ask spreads within the trading price discovery mechanism. This is similar to the fledgling local foreign exchange brokerage markets in the Caribbean, where the market power of individual brokers influences their monopoly rent extraction and ultimately influences the exchange rate (Khemraj & Pasha, 2014). Finally, a critical issue in these smaller stock markets is that informational asymmetry becomes so significant that it precipitates a prohibitive widening of bid-ask spreads to protect uninformed investors from being outpriced by investors with superior information (Vayanos & Wang, 2007).…”

Section: Dependent Variablementioning

confidence: 85%

Nonexecutive director influence on informational asymmetries in Caribbean offshore financial centers

Hearn

Mohr

Kaur

et al. 2022

Corporate Governance

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Question/issue: This is a study of the relationship between nonexecutive director personal ownership and firm's bid ask spreads in listed firms from across the Caribbean offshore securities exchanges.Research findings/insights: We report that bid ask spreads increase with nonexecutive ownership. However, this result is reduced (negatively moderated) in the context of higher formal institutional quality and also if the territory has a fixed exchange rate regime but exacerbated (positively moderated) if the firm is located within an offshore jurisdiction.Theoretical/academic implications: The results regarding the influence of nonexecutive director ownership on firm liquidity-based transaction costs, namely, market estimates of bid ask spreads, are interpreted in terms of the contingency of this relationship on the wider institutional context. The effectiveness of nonexecutive directors is highly contingent upon the specific institutional context. Higher formal institutional quality and the presence of a strong macroeconomic tie between territory and Organisation for Economic Co-operation and Development (OECD) country lead to a reduction in these costs, while offshore financial centers lead to their increase. We argue that this highlights a shortcoming of agency theory's more limited view of institutions.Practitioner/policy implications: The results support regulator's focus on board of director composition and in particular nonexecutive remuneration in the form of ownership. Given the increasing dominance of Anglo-American governance, firms worldwide are increasing the proportions of nonexecutive directors on their boards. However, their role is acutely context specific which is reflected in the relationship between their personal ownership and the liquidity-borne transaction costs of the firm as a whole.

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Determinants of Nonperforming Loans in Guyana

Khemraj

Pasha

2016

Financial Deepening and Post-Crisis Development in Emerging Markets

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The Determinants of Bid-Ask Spread in the Guyanese FX Market

Cited by 3 publications

References 25 publications

The foreign exchange regime in a small open economy: Armenia and beyond

The foreign exchange regime in a small open economy: Armenia and beyond

Nonexecutive director influence on informational asymmetries in Caribbean offshore financial centers

Determinants of Nonperforming Loans in Guyana

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