The key role of quoted spreads in financial services and transactions

Peña, Guillermo

doi:10.17811/ebl.10.3.2021.208-216

Cited by 2 publications

(3 citation statements)

References 19 publications

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“…Gravity Laws are essential in economics, overall in trade [1] (Ismail, 2021), but also for finance as recently shown [2,3] (López-Laborda and Peña, 2018, Peña, 2021. The present paper deals with the adaptation to finance of a well-known gravity law of urban economics and regional sciences, the Reilly's Gravity Law of economic activity between two cities and an intermediary one.…”

Section: Introductionmentioning

confidence: 92%

“…Nonetheless, there is no direct equivalent for financial services. The model closer to the previous proposal is developed by López-Laborda and Peña (2018), developing the Financial Gravity (FG) models [3] (Peña, 2021). These authors adapt the last advances by Poddar and English [5] (1997) in the calculation of the value added of the financial services.…”

Section: Theoretical Aspects For the Reilly's Lawmentioning

confidence: 99%

“…This paper follows the Financial Gravity (FG) models proposed by Peña [3] (2021) and others. First, this section starts by considering financial services as a special case of financial transactions.…”

Section: The Gravity Modelsmentioning

confidence: 99%

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Reilly’s gravity law adapted to finance

Peña

2024

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The present paper proposes new indicators that explain the pricing of the unitary pure interest rates and interests by adapting previous Reilly’s Law (RL) models of urban economics and regional economics and Financial Gravity (FG) models for financial services. A panel dataset of 114 countries for 1967-2021 is handled, applying the OLS methodology. The results show the higher explanatory power of the adaptation of the FG models rather than the proposed adaptation of the RL ones. Purpose: This paper tries to adapt previous Gravity Equations from Urban Economics to Finance and empirically checks whether they behave better than the recently found Financial Gravity (FG) models. For that, new indicators are provided jointly with their adaptations to Ordinary Least Square (OLS) methods. Additionally, an economic perspective of the bid-asks of financial products is provided. Design/methodology/approach: OLS methods are used to check the desirability and accuracy of the new indicators. A panel dataset of 114 countries for 1967-2021 is handled, applying the OLS methodology. Findings: The most adequate are the FG models after the empirical check, providing the desirable properties of those models. The results show the higher explanatory power of the adaptation of the FG models rather than the proposed adaptation of the RL ones. Originality: This is the first paper, to the author’s knowledge, on providing an adaptation of Reilly’s Law from urban economics models to finance, also providing empirical evidence after adapting these models to linear expressions for applying OLS methods. We also provide evidence on the statistical equality between the unitary pure interest of loan and deposit interests, confirming the good properties of the FG models.

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