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Exchange rate determination and inter–market order flow effects

Danielsson, Jon, Luo, Jinhui and Payne, Richard (2012) Exchange rate determination and inter–market order flow effects. European Journal of Finance, 18 (9). pp. 823-840. ISSN 1351-847X

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Identification Number: 10.1080/1351847X.2011.601655


The dependence of foreign exchange rates on order flow is investigated for four major exchange rate pairs, EUR/USD, EUR/GBP, GBP/USD and USD/JPY, across sampling frequencies ranging from 5 min to 1 week. Strong explanatory power is discovered for all sampling frequencies. We also uncover cross-market order flow effects, e.g. GBP exchange rates are very strongly influenced by EUR/USD order flow. We proceed to investigate the predictive power of order flow for exchange rate changes, and it is shown that the order flow specifications reduce RMSEs relative to a random walk for all exchange rates at high-frequencies and for EUR/USD and USD/JPY at lower sampling frequencies.

Item Type: Article
Official URL:
Additional Information: © 2012 Copyright Taylor and Francis Group, LLC.
Divisions: Finance
Financial Markets Group
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
JEL classification: F - International Economics > F0 - General
F - International Economics > F3 - International Finance
G - Financial Economics > G1 - General Financial Markets
Date Deposited: 19 Apr 2013 12:09
Last Modified: 16 Jul 2024 22:51

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