NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Japan's Big Bang and the Transformation of Financial Markets

Takatoshi Ito, Michael Melvin

NBER Working Paper No. 7247
Issued in July 1999
NBER Program(s):   AP   IFM

A first step in the 'big bang' markets was the deregulation of the foreign exchange market on April 1, 1998. This paper examines how the bid-ask spread and conditional volatility in the yen/dollar foreign exchange market changed around the time of the deregulation. Intra-day data are analyzed with the following results: (1) Holding constant the effects of volume and volatility, the deregulation was associated with a convergence of Japanese quoted spreads toward those of other banks. (2) Modeling the persistence in volatility reveals that deregulation lowered conditional volatility.

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Document Object Identifier (DOI): 10.3386/w7247

Published: Blomstrom, M., B. Gangnes, S. La Croix (eds.) Japan’s New Economy. Oxford University Press, January 2001.

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