Random Walk or A Run: Market Microstructure Analysis of the Foreign Exchange Rate Movements based on Conditional Probability /
Hashimoto, Yuko.
Random Walk or A Run: Market Microstructure Analysis of the Foreign Exchange Rate Movements based on Conditional Probability / Yuko Hashimoto, Takatoshi Ito, Takaaki Ohnishi, Misako Takayasu, Hideki Takayasu, Tsutomu Watanabe. - Cambridge, Mass. National Bureau of Economic Research 2008. - 1 online resource: illustrations (black and white); - NBER working paper series no. w14160 . - Working Paper Series (National Bureau of Economic Research) no. w14160. .
July 2008.
Using tick-by-tick data of the dollar-yen and euro-dollar exchange rates recorded in the actual transaction platform, a "run" -- continuous increases or decreases in deal prices for the past several ticks -- does have some predictable information on the direction of the next price movement. Deal price movements, that are consistent with order flows, tend to continue a run once it started i.e., conditional probability of deal prices tend to move in the same direction as the last several times in a row is higher than 0.5. However, quote prices do not show such tendency of a run. Hence, a random walk hypothesis is refuted in a simple test of a run using the tick by tick data. In addition, a longer continuous increase of the price tends to be followed by larger reversal. The findings suggest that those market participants who have access to real-time, tick-by-tick transaction data may have an advantage in predicting the exchange rate movement. Findings here also lend support to the momentum trading strategy.
System requirements: Adobe [Acrobat] Reader required for PDF files.
Mode of access: World Wide Web.
Random Walk or A Run: Market Microstructure Analysis of the Foreign Exchange Rate Movements based on Conditional Probability / Yuko Hashimoto, Takatoshi Ito, Takaaki Ohnishi, Misako Takayasu, Hideki Takayasu, Tsutomu Watanabe. - Cambridge, Mass. National Bureau of Economic Research 2008. - 1 online resource: illustrations (black and white); - NBER working paper series no. w14160 . - Working Paper Series (National Bureau of Economic Research) no. w14160. .
July 2008.
Using tick-by-tick data of the dollar-yen and euro-dollar exchange rates recorded in the actual transaction platform, a "run" -- continuous increases or decreases in deal prices for the past several ticks -- does have some predictable information on the direction of the next price movement. Deal price movements, that are consistent with order flows, tend to continue a run once it started i.e., conditional probability of deal prices tend to move in the same direction as the last several times in a row is higher than 0.5. However, quote prices do not show such tendency of a run. Hence, a random walk hypothesis is refuted in a simple test of a run using the tick by tick data. In addition, a longer continuous increase of the price tends to be followed by larger reversal. The findings suggest that those market participants who have access to real-time, tick-by-tick transaction data may have an advantage in predicting the exchange rate movement. Findings here also lend support to the momentum trading strategy.
System requirements: Adobe [Acrobat] Reader required for PDF files.
Mode of access: World Wide Web.