scholarly journals Does Foreign Exchange Volume Activity Predict Foreign Exchange Returns? Evidence from Buy-Sell Volume in the Euro-Dollar Market

2018 ◽  
Vol 4 (2) ◽  
pp. 15
Author(s):  
David Spohn
Keyword(s):  
Regression Analysis ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Predictive Ability ◽  
Inverse Correlation ◽  
Time Varying ◽  
Trading Rule ◽  
Exchange Market ◽  
Volume Activity ◽  
Calendar Effects

This paper investigates the predictive ability of lagged buy-sell volume on current foreign exchange returns. Using novel Euro-Dollar foreign exchange market data from 2007 to 2015, we show that the buy-sell volume has an inverse correlation with current foreign exchange returns. Using conditional regression analysis, buy-sell volumes predict subsequent Euro-Dollar returns. We divide the data into two sub-samples. We use the first sub-sample to create a trading rule, and we use the second sub-sample to test the rule. After adjusting for time-varying calendar effects, we find that a profitable trading strategy exists using only buy-sell volume to predict returns.

Impact of uncertainty on foreign exchange market stability: based on the LT-TVP-VAR model

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Jingshan Liu
Keyword(s):  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Structural Breaks ◽  
Future Research ◽  
Time Varying ◽  
Exchange Market ◽  
Content Type ◽  
Market Stability ◽  
Negative Effect ◽  
Threshold Time

PurposeThe purpose of this study is to investigate the effects of uncertainty, namely, macroeconomic uncertainty (MU) and financial uncertainty (FU) on foreign exchange market stability, specifically on foreign exchange market pressure (EMP) and jump risk (RJV).Design/methodology/approachThe latent threshold time-varying parameter VAR (LT-TVP-VAR) econometric approach is used in estimations to solve structural breaks.FindingsThe relationship of uncertainties and China's foreign exchange market stability is latent threshold nonlinear dynamic time-varying. In China's renminbi (RMB) appreciation stage, both MU and FU weaken the appreciation pressure of RMB. Moreover, MU and FU significantly increase the RJV, while MU significantly affects the RJV of the foreign exchange market. In the RMB depreciation stage, both MU and FU strengthen the EMP.Research limitations/implicationsFindings based on data in China's foreign exchange market can be considered for other global markets in future research.Practical implicationsAn increase in MU and FU has a negative effect on foreign exchange stability. Regulators can prevent the economic system uncertainty shocks on foreign exchange market stability through observation and judgment of MU and FU, which helps prevent and relieve financial risks. Investors can reduce foreign exchange risk as the exchange rate rebounds after hedging behavior during high uncertainty periods.Originality/valueThe effect of MU on the foreign exchange market stability is greater than that of FU, regardless of whether EMP or RJV occurs in the foreign exchange market.

Evolving Efficiency of Exchange Rate Movement: An Evidence from Indian Foreign Exchange Market

2019 ◽  
Vol 21 (4) ◽  
pp. 956-969 ◽  
Author(s):  
Sashikanta Khuntia ◽  
J. K. Pattanayak
Keyword(s):  
Exchange Rate ◽  
Market Efficiency ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Exchange Rate Regime ◽  
Time Varying ◽  
Exchange Market ◽  
Arbitrage Opportunities ◽  
Window Approach ◽  
Central Bank Interventions

This study empirically verifies the evolving and time-varying efficiency of Indian foreign exchange market using the framework of adaptive market hypothesis (AMH). Whether market efficiency is time varying or static, and if time varying, identification of possible events causing such time-varying efficiency are the two major agenda of this study. We employ a set of recent methods which are robust and possess stronger power properties. Moreover, we follow a fixed-length rolling window approach to explore time-varying nature of market efficiency and to avoid data-snooping bias. Our overall findings suggest that market efficiency is not an all-or-nothing condition; it varies over time. We also find that episodes of efficiency coincide with emergence of major events and market microstructure issues. Particularly, changes in exchange rate regime, financial turbulence, major central bank interventions and trade volume are the prominent causes for time-varying efficiency in INR–USD exchange rate. The evidence of swing between efficiency and inefficiency can prompt currency traders to exploit arbitrage opportunities that emerge with different market conditions.

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