spread

 The foreign exchange market (FX market) accounts for 40% of the total volume of the world€™s e-commerce by its own. Based on statistics, sometimes up to 90 per cent of the traders lose their total capital in this market just within six months to one year and leave this market. The probability of loss in the FX market can be estimated by probability theory. The present paper intends to demonstrate the loss in the FX market within the frameworks of some developed theoretical models using the data on the exchange rates for the currency pairs (EUR/ JPY, USD/ EUR) for the time interval of February-October in 2013.   According to the results of simulation of the loss in the FX market, a number of factors including the leverage level, the volatility of the exchange rate for the currency pair, inflation rate, spread, the number of the transactions and the number of sudden stop transactions are directly related to the percentage of the loser traders so that any decrease in the above-mentioned factors is accompanied by a decrease in the percentage of the losers in the FX market. Furthermore, based on experimental results, the loss probability in this market is as much as 60% for the lower leverage levels. This value amounts to 99% for the higher leverage levels.         JEL Classification: CO2, C60, C88, F31  

This study examines the relationship between stock liquidity and return predicta-bility of 116 publicly-traded firms in Tehran Stock Exchange (TSE). To this end, we constructed a dated-regular frequency of time series with total 40128 stock-firm observations. After calculating daily bid-ask spreads and stock returns, the observations were classified based on liquidity into three classes and the return predictability was investigated across different classes using a set of parametric tests. The results exhibit signs of return autocorrelation and non-independence over three liquidity groups. Our findings didn’t show a connection between stock liquidity and market efficiency. The Hurst exponent also revealed mean reversion of returns series across different liquidity classes. We conclude that stock liquidity doesn’t play a significant role in market efficiency and return predictability of stocks in TSE. In case of TSE as other emerging markets, due to the small num-ber of traders (the need for more trading activity) and low market making activi-ties, both the cost of trading increases and the reaction to stock price information is delayed, resulting in predictability of price /return.