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I look for any references where one consider how bid-ask spread depends on volatility (may be it is more correct to say 'volatility measure'). I would be grateful for any references.

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Whatever is published out there, you are better off developing the model yourself. The model has to be customized to your objectives. Much depends on the asset and the broker / market maker. And still, there is no clear relationship.

For example, for most currencies the period 5 pm - 5:15 pm (EST) is when many brokers "take the rest" and set very high bid-ask spreads. They take the rest because this is the end of NY day and time for very thin trading. "Thin trading" means low volatility. On the other hand, during active hours the relationship is the reverse. Around the announcements we see increased bid-ask spread and increased volatility. Usually, we are talking about 3:30 am, 5 am and 8:30 am (EST).

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  • $\begingroup$ Consider the most 'standard' period of time. What about this? $\endgroup$ – Artem Alexandrov Jan 26 at 16:18
  • $\begingroup$ There is no such thing. Dynamics around 8:45 am is quite different from dynamics around 8:30 am... If you put your heart and soul into this, you will create something of value. Because the underlying relationships are non-trivial. $\endgroup$ – stans Jan 26 at 16:22

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