FX Spot and Swap Market Liquidity Spillovers

Ingomar Krohn, Vladyslav Sushko

Publikation: Working paperForskning

Resumé

We study the joint evolution of foreign exchange (FX) spot and swap market liquidity. Trading in FX swaps exceeds that of spot, yet this market segment has been largely ignored in prior research on liquidity in FX markets. We find strong co-movement in spot and swap market liquidity conditions and a strong link between FX funding and market liquidity, as gleaned from the pricing of both instruments. This link has strengthened over time with changes in dealer behaviour. Some of the largest dealers periodically pull back from pricing FX swaps and wider spreads attract smaller dealers. At the same time, liquidity in FX swaps remains impaired, which leads to adverse illiquidity spillovers to the spot market. Our findings suggest that funding liquidity has become a more important driver of spot market liquidity than it used to be.
OriginalsprogEngelsk
Udgivelses stedBasel
UdgiverBank for International Settlements
Antal sider61
StatusUdgivet - 2020
NavnBIS Working Papers
Nummer836

Emneord

  • Foreign exchange
  • Market and funding liquidity
  • Microstructure
  • Dealer activity
  • Window dressing

Citer dette

Krohn, I., & Sushko, V. (2020). FX Spot and Swap Market Liquidity Spillovers. Basel: Bank for International Settlements. BIS Working Papers, Nr. 836
Krohn, Ingomar ; Sushko, Vladyslav. / FX Spot and Swap Market Liquidity Spillovers. Basel : Bank for International Settlements, 2020. (BIS Working Papers; Nr. 836).
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Krohn, I & Sushko, V 2020 'FX Spot and Swap Market Liquidity Spillovers' Bank for International Settlements, Basel.

FX Spot and Swap Market Liquidity Spillovers. / Krohn, Ingomar; Sushko, Vladyslav.

Basel : Bank for International Settlements, 2020.

Publikation: Working paperForskning

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KW - Dealer activity

KW - Window dressing

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Krohn I, Sushko V. FX Spot and Swap Market Liquidity Spillovers. Basel: Bank for International Settlements. 2020.