Big Data

Spread Components In The Hungarian Forint-Euro Market

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The authors apply the spread decomposition model by Huang and Stoll (1997) to a new data set on the Hungarian Forint-Euro market. The results show differences between the small and less liquid HUF/EUR market and previous results on more developed markets. The results suggest that the share of cost components other than order processing costs is substantially higher in the HUF/EUR market. Furthermore, Authors find a significant inventory effect, which can be explained by the low number of trades per day and thus the long time between offsetting trades. The spread size increases with trade size, while the order processing component of the spread remains more or less constant.