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An Empirical Examination of Asymmetry on Exchange Rate Spread Using Quantile Autoregressive Distributed Lag (QARDL) Model

GOKTUG SAHIN, AFSIN SAHIN

ANKARA HACI BAYRAM VELI UNIVERSITY

BESEVLER, ANKARA

E-MAIL: AFSIN.SAHIN@HBV.EDU.TR

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I. Introduction -1-

* Demand and Supply Dynamics
* Demand: Expected Return, Import Level and Interest Rates

* Supply: Foreign Currency Reserves of the Central Bank and
Commercial Banks

* Foreign Currency as a Value Saver
* Stability and Market Structure
*Compensatory Justice Principle

Net Exports

Net Savings

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I. Introduction -2-

* Garman (1976): Earlier notion of the market structure.
* Order processing, inventory holding and asymmetric information costs.
* Frömmel and Van Gysegem (2015): Effects of costs on Hungarian Forint/Euro exchange rate.
* Chelley-Steeley and Tsorakidis (2013, p. 119): Restricted effect of costs on the bid-ask spread.
* Volume, volatility, risk, uncertainty, asymmetric information and competition.
* Seyidoglu (2009, p. 360): Transaction costs, taxes and banks’ profit in general.

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I. Introduction -3-

* Melvin and Tan (1996): Volatility and riskiness increase the bid-ask spread
* Davutyan (1997): Interest rate, volatility increase the bid-ask spread
* Becker and Sy (2006): Volatility increases but volumes’ coefficient is not significant and positive
* Ding and Hiltrop (2006): Electronic trading systems decrease but volatility increases it
* Dornbusch and Pechman (1985): Interest rate and risk increase the spread.
* Zhong and Shang (2020): Exchange rate reform and interest rate differential increases the spread.
* Li, Li and Si (2020) economic policy uncertainty increases the spread in the long-run but decreases it in the short-

run. Interest rate differential effects it positively in both terms, and the Exchange rate expectationa and intervention

effects it negatively in the long-run.

* Fullerton and Pallares (2022) total north bound border crossings effect the spread negatively

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I. Introduction -4-

QARDL Applications in the Literature
*Abbas, Sharif, Song, Ali, Khan and Amin (2022): Price risks on US stock prices
*Benkraiem, Hoang, Lahiani and Miloudi (2018): Oil prices on stock prices
*Bankraiem, Lahiani, Miloudi and Shahbaz (2018): Energy prices on stock prices
*Chang, Bhutto, Turi, Hashmi and Gohar (2020): Macroeconomic variables on stock prices
*Omoke and Unche (2021): Oil price shocks on purchasing power
*Zhan, Ali, Sarwat, Godil, Dinca and Anser (2021): Enviromental issues
*Jiang, Zhang, Razi and Kamran (2021), Solarin and Bello (2020), Nor, Masron and Alabdullah (2020, p. 3), Zhu, Peng and You (2016), Wang, Lou and Dinca (2021)

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I. Introduction -5-

Contribution
*Adressing The Possible Nonlinearities
*Applying the QARDL Model the Bid-Ask Spread Topic
* Volume, Volatility, Interest Rate, Stock Prices

Bid-Ask Spread

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II. Materials and Methods -1-

Table 1. Definition of Variables
Variable	Data Code	Explanations	Source	Data Start	Data Ende
VOL	TP.TLDOV06.EFK	Foreign Banknotes-Level	CBRT, EVDS	14-10-2002	25-07-2022
BUA	TP.ALIM.USD	BID Amount (USD) -Level	CBRT, EVDS	-	-
AUA	TP.SATIM.USD	ASK Amount (USD) -Level	CBRT, EVDS	-	-
FOREXN	TP.DF.DD.ADED	FOREX/FOREX Number of Transactions (Transaction amounts and volumes are two sided)-Level	CBRT, EVDS	11-06-1991	02-04-2004
FOREXV	TP.DF.DD.HACM	FOREX/FOREX Volume of Transactions (USD) (Transaction amounts and volumes are two sided)-Level	CBRT, EVDS	11-06-1991	02-04-2004
FOREXBN	TP.DF.DE.ADED	FOREX/BANKNOTES Number of Transactions (Transaction amounts and volumes are two sided)-Level	CBRT, EVDS	25-09-1990	01-08-2022
FOREXBV	TP.DF.DE.HACM	FOREX/BANKNOTES Volume of Transactions (USD) (Transaction amounts and volumes are two sided)-Level	CBRT, EVDS	25-09-1990	01-08-2022
TLN	TP.DF.TD.ADED	TL/FOREX Number of Transactions (Transaction amounts and volumes are two sided)-Level	CBRT, EVDS	25-09-1990	27-04-2016
TLV	TP.DF.TD.HACM	TL/FOREX Volume of Transactions (USD) (Transaction amounts and volumes are two sided)-Level	CBRT, EVDS	25-09-1990	27-04-2016
TLBN	TP.DF.TE.ADED	TL/BANKNOTES Number of Transactions (Transaction amounts and volumes are two sided)-Level	CBRT, EVDS	03-01-1992	28-06-2002
TLBV	TP.DF.TE.HACM	TL/BANKNOTES Volume of Transactions (USD) (Transaction amounts and volumes are two sided)-Level	CBRT, EVDS	03-01-1992	28-06-2002
USDB	TP.DK.USD.A.EF.YTL	(USD) US Dollar (Banknote Buying)-Level (Bid Price)	CBRT, EVDS	02-01-1990	02-08-2022
USDA	TP.DK.USD.S.EF.YTL	(USD) US Dollar (Banknote Selling)-Level (Ask Price)	CBRT, EVDS	02-01-1990	02-08-2022
USDBAS		Own Calculation		02-01-1990	02-08-2022

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II. Materials and Methods -2-

Table 2. Phillips-Perron (PP) Unit Root Test Results
		VOL	FOREXBN	FOREXBV	TLN	TLV	TLBN	TLBV	USDB	USDA	USDBASN	USDBASD	DUSDA	MAV	COND	RIO	AFO	MK	PINDICE	ONW
WC	t	-71.33	-19.92	-49.24	-70.60	-39.24	-24.39	-24.21	8.00	8.00	-1.73	6.81	-76.37	-10.62	-49.03	-0.80	-0.92	-8.94	4.29	-1.27
	p	0.00	0.00	0.00	0.00	0.0000	0.00	0.00	1.00	1.00	0.4151	1.00	0.00	0.00	0.00	0.81	0.78	0.00	1.00	0.64
	s	***	***	***	***	***	***	***	Ns	ns	ns	ns	***	***	***	ns	ns	***	ns	ns
WCT	t	-76.73	-30.88	-47.67	-72.83	-38.85	-25.79	-25.37	7.03	7.03	-2.78	6.08	-76.94	-10.67	-49.03	-2.29	-2.38	-11.86	3.14	-1.49
	p	0.00	0.00	0.00	0.00	0.0000	0.00	0.00	1.00	1.00	0.20	1.00	0.00	0.00	0.00	0.43	0.38	0.00	1.00	0.83
	s	***	***	***	***	***	***	***	Ns	ns	ns	ns	***	***	***	ns	ns	***	ns	ns
OTC	t	-24.64	-14.51	-46.85	-64.52	-40.12	-19.69	-21.59	8.3807	8.37	-0.75	7.09	-76.55	-8.17	-49.04	-0.95	-0.95	-7.87	4.95	-0.00
	p	0.00	0.00	0.00	0.00	0.00	0.00	0.00	1.00	1.00	0.39	1.00	0.00	0.00	0.00	0.30	0.30	0.00	1.00	0.68
	s	***	***	***	***	***	***	***	Ns	ns	ns	ns	***	***	***	ns	ns	***	ns	ns
		FD	FD	FD	FD	FD	FD	FD	FD	FD	FD	FD	FD	FD	FD	FD	FD	FD	FD	FD
WC	t	-717.2	-310.96	-198.49	-190.91	-328.10	-381.65	-223.15	-84.03	-84.03	-94.69	-85.81	-1,024.91	-78.06	-1,627.88	-92.21	-92.20	-186.79	-92.79	-45.41
	p	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	1.00	0.00	1.00	0.00	0.00	0.00	0.00	0.00
	s	***	***	***	***	***	***	***	***	***	***	***	ns	***	ns	***	***	***	***	***
WCT	t	-727.1	-324.98	-195.81	-191.28	-331.02	-566.52	-219.67	-84.63	-84.63	-94.69	-86.27	-1,024.84	-78.05	-1,627.83	-92.20	-92.20	-193.09	-92.87	-45.40
	p	0.0001	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	1.00	0.00	1.00	0.00	0.00	0.00	0.00	0.00
	s	***	***	***	***	***	***	***	***	***	***	***	ns	***	ns	***	***	***	***	***
OTC	t	-689.8	-301.18	-198.96	-190.67	-326.22	-277.05	-222.92	-84.16	-84.16	-94.70	-85.63	-1,025.02	-78.06	-1,628.04	-92.21	-92.21	-182.55	-92.73	-45.42
	p	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	1.00	0.00	1.00	0.00	0.00	0.00	0.00	0.00
	s	***	***	***	***	***	***	***	***	***	***	***	ns	***	ns	***	***	***	***	***

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II. Materials and Methods -3-

Table 3. Augmented Dickey Fuller (ADF) Unit Root Test Results
		VOL	FOREXBN	FOREXBV	TLN	TLV	TLBN	TLBV	USDB	USDA	USDBASN	USDBASD	DUSDA	MAV	COND	RIO	AFO	MK	PINDICE	ONW
WC	t	-5.93	-3.49	-10.54	-6.78	-2.73	-16.17	-15.36	7.74	7.7383	-1.7426	6.22	-45.84	-9.01	-49.03	-0.807	-0.92	-7.28	3.75	-1.34
	p	0.00	0.00	0.00	0.00	0.06	0.00	0.00	1.00	1.00	0.40	1.00	0.00	0.00	0.00	0.81	0.78	0.00	1.00	0.61
	s	***	***	***	***	*	***	***	ns	ns	ns	ns	***	***	***	ns	ns	***	ns	ns
WCT	t	-6.86	-4.30	-10.82	-7.63	-2.89	-16.37	-15.57	6.91	6.91	-2.78	5.52	-55.89	-9.06	-49.03	-2.29	-2.38	-7.08	2.77	-1.58
	p	0.00	0.00	0.00	0.00	0.16	0.00	0.00	1.00	1.00	0.20	1.00	0.00	0.00	0.00	0.43	0.38	0.00	1.00	0.80
	s	***	***	***	***	ns	***	***	ns	ns	ns	ns	***	***	***	ns	ns	***	ns	ns
OTC	t	-3.0	-2.83	-2.94	-3.49	-1.88	-2.25	-2.61	8.04	8.03	-0.75	6.42	-13.29	-6.29	-49.02	-0.951	-0.95	-7.31	4.29	-0.23
	p	0.00	0.00	0.00	0.00	0.05	0.02	0.00	1.00	1.00	0.38	1.00	0.00	0.00	0.00	0.30	0.30	0.00	1.00	0.60
	s	***	***	***	***	*	**	***	ns	ns	ns	ns	***	***	***	ns	ns	***	ns	ns
		FD	FD	FD	FD	FD	FD	FD	FD	FD	FD	FD	FD	FD	FD	FD	FD	FD	FD	FD
WC	t	-30.99	-32.99	-33.21	-23.43	-20.25	-17.34	-14.69	-17.73	-17.73	-94.64	-17.88	-34.99	-23.84	-29.30	-92.21	-92.20	-8.42	-12.85	-20.40
	p	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.0001	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
	s	***	***	***	***	***	***	***	***	***	***	***	***	***	***	***	***	***	***	***
WCT	t	-30.98	-32.99	-33.29	-23.41	-20.26	-17.35	-14.69	-18.20	-18.20	-94.64	-18.25	-34.99	-23.84	-29.30	-92.20	-92.20	-8.71	-12.89	-20.40
	p	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
	s	***	***	***	***	***	***	***	***	***	***	***	***	***	***	***	***	***	***	***
OTC	t	-30.99	-32.99	-33.19	-23.45	-20.24	-17.34	-14.68	-17.48	-17.48	-94.65	-17.66	-35.00	-23.84	-29.30	-92.21	-92.21	-8.31	-12.78	-20.41
	p	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
	s	***	***	***	***	***	***	***	***	***	***	***	***	***	***	***	***	***	***	***

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II. Materials and Methods -4-

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II. Materials and Methods -5-

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II. Materials and Methods -5-

Advantages of QARDL over ARDL

Considers endogeneity and multicollinearity problems
But we cannot estimate parameters at the quantile-on-quantile level

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III. Results -6-

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III. Results -6-

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III. Results -6-

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III. Results -6-

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III. Results -6-

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III. Results -6-

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III. Results -6-

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III. Results -6-

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5. Conclusion -1-

*The probability of being positive of a point in the bid-ask spread

Bid

Ask

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5. Conclusion -2-

ECM

ECM

ARDL: 17, 28, 24 ALL

QARDL 17: 0.05, 0.10, 0.20, 0.30

QARDL 18: 0.05, 0.10, 0.20, 0.30, 0.40

QARDL 24: 0.05, 0.10

QARDL 17: 0.60, 0.70, 0.80, 0.90, 0.95

QARDL 18: 0.60, 0.70, 0.80, 0.90, 0.95

QARDL 24: 0.50 0.60, 0.70, 0.80, 0.90, 0.95

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5. Conclusion -3-

VOLUME

LONG

ARDL: 17, 18, 24

QARDL 17: 0.05, 0.10, 0.20, 0.30, 0.60, 0.70, 0.80

QARDL 18: 0.20, 0.30, 0.60, 0.70, 0.80

QARDL 24: 0.10, 0.30

ARDL: NONE

QARDL 17: 0.90, 0.95

QARDL 18: 0.05, 0.10, 0.90, 0.95

QARDL 24: 0.05, 0.80, 0.90, 0.95

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5. Conclusion -4-

VOLUME

SHORT

ARDL : 17, 18, 24: ALL

QARDL 17: 0.05, 0.10, 0.30, 0.40, 0.90, 0.95

QARDL 18: 0.05, 0.10, 0.30, 0.40, 0.90, 0.95

QARDL 24: 0.10, 0.20, 0.30, 0.50, 0.60, 0.70, 0.80, 0.90

ARDL : NONE

QARDL 17: NONE

QARDL 18: NONE

QARDL 24: NONE

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5. Conclusion -5-

VOLATILITY

LONG

ARDL : NONE

QARDL 17: NONE

QARDL 18: NONE

QARDL 24: 0.05, 0.95

ARDL: 17, 18

QARDL 17: 0.05, 0.10, 0.20, 0.30, 0.70, 0.80, 0.90, 0.95

QARDL 18: 0.05, 0.10, 0.20, 0.30, 0.70, 0.80, 0.90, 0.95

QARDL 24: NONE

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5. Conclusion -6-

VOLATILITY

SHORT

ARDL : 24

QARDL 17: 0.60, 0.70, 0.90, 0.95

QARDL 18: 0.40, 0.60, 0.70, 0.90, 0.95

QARDL 24: 0.20, 0.30, 0.40, 0.50, 0.60, 0.70, 0.80, 0.90, 0.95

ARDL : 17, 28

QARDL 17: 0.05, 0.10, 0.20

QARDL 18: 0.05, 0.10, 0.20

QARDL 24: NONE

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5. Conclusion -7-

INTEREST

LONG

ARDL NONE

QARDL 17: 0.05, 0.10, 0.20, 0.30

QARDL 18: 0.05, 0.10, 0.20, 0.30

QARDL 24: 0.95

ARDL NONE

QARDL 17: 0.60, 0.70

QARDL 18: 0.60, 0.70

QARDL 24: NONE

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5. Conclusion -8-

INTEREST

SHORT

ARDL : NONE

QARDL 17: 0.30

QARDL 18: 0.10, 0.30

QARDL 24: 0.30, 0.95

ARDL : NONE

QARDL 17: NONE

QARDL 18: NONE

QARDL 24: NONE

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5. Conclusion -9-

STOCK

LONG

ARDL 17, 18, 24

QARDL 17: 0.10, 0.20, 0.30

QARDL 18: 0.10, 0.30

QARDL 24: 0.80

ARDL NONE

QARDL 17: NONE

QARDL 18: 0.95

QARDL 24: NONE

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5. Conclusion -10-

STOCK

SHORT

ARDL : 24

QARDL 17: NONE

QARDL 18: NONE

QARDL 24: NONE

ARDL : NONE

QARDL 17: 0.05, 0.10, 0.20, 0.30, 0.40, 0.50, 0.60, 0.70, 0.80, 0.90, 0.95

QARDL 18: 0.05, 0.10, 0.20, 0.30, 0.40, 0.50, 0.60, 0.70, 0.80, 0.90, 0.95

QARDL 24: 0.20, 0.30, 0.40, 0.50, 0.60, 0.70, 0.80, 0.90, 0.95

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5. Conclusion -11-

High Spread

Efficiency in the bid-ask exchange rate spread

Location Asymmetry
Sign Asymmetry

QARDL

Control

Policy Implications

Level of Spread

Speculative

Profit

Transmission of Exchange Rate

Different Exchange Rate

Income Distribution

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