Danielsson, Jon, Luo, Jinhui and Payne, Richard (2011) Exchange rate determination and inter–market order flow effects. Jon Danielsson.
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)|
|Additional Information:||© 2011 The Authors|
|Uncontrolled Keywords:||exchange rate determination, order flow|
|Library of Congress subject classification:||H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
|Journal of Economic Literature Classification System:||F - International Economics > F0 - General
F - International Economics > F3 - International Finance
G - Financial Economics > G1 - General Financial Markets
|Sets:||Departments > Finance
Collections > Economists Online
Research centres and groups > Financial Markets Group (FMG)
|Date Deposited:||16 Apr 2012 15:45|
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