Danielsson, Jon 
ORCID: 0009-0006-9844-7960, Luo, Jinhui and Payne, Richard
(2011)
Exchange rate determination and inter–market order flow effects.
.
Jon Danielsson.
Abstract
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 minutes 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. The Meese and Rogoff (1983a,b) framework is used 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: | Monograph (Working Paper) |
|---|---|
| Official URL: | http://www.riskresearch.org/ |
| Additional Information: | © 2011 The Authors |
| 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: | 16 Apr 2012 15:45 |
| Last Modified: | 01 Oct 2024 03:18 |
| URI: | http://eprints.lse.ac.uk/id/eprint/43143 |
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