Location of Repository

An investigation of customer order flow in the foreign exchange market

By Mario Cerrato, Nicholas Sarantis and Alex Saunders

Abstract

This paper examines the effect that heterogeneous customer orders flows have on exchange rates by using a new propreitary dataset of weekly net order flow segmented by customer type across nine of the most liquid currency pairs. We make three contributions. First, we investigate the extent to which order flow can help to explain exchange rate movements over and above the influence of macroeconomic variables. Second, we look at the usefulness of order flow in forecasting exchange rate movements at longer horizons than those generally considered in the microstructure literature. Finally we address the question of whether the out-of-sample exchange rate forecasts generated by order flows can be employed profitably in the foreign exchange markets.Customer order flow; exchange rates; microstructure; forecasting

OAI identifier:

Suggested articles

Preview

Citations

  1. (1997). A Simultaneous Trade Model of the Foreign Exchange Hot Potato,
  2. (1995). Banking on Currency Forecasts: How Predictable is Change in Money,
  3. (1990). Charts, Noise and Fundamentals in the London Foreign Exchange Market,
  4. (2008). Commercially Available Order Flow Data and Exchange Rate Movements: Caveat Emptor,
  5. (1995). Comparing Predictive Accuracy,
  6. (2004). Customer Order Flows and Exchange Rates Movements: Is There Really Information Content?, Cass Business School, Working Papers.
  7. (2005). Dealer Behaviour and Trading Systems in the Foreign Exchange Markets,
  8. (1998). Deutsche Mark-Dollar Volatility: Intraday Activity Patterns, Macroeconomic Announcements, and Longer Run Dependencies,
  9. (2005). Empirical Exchange Rate Models of the Nineties: Are Any Fit to Survive?
  10. (1983). Empirical Exchange Rate Models of the Seventies: Do they Fit out of Sample?
  11. (2010). Exchange Rate Forecasting, Order Flow and Macroeconomic Information,
  12. (2007). Exchange Rate Fundamentals and Order Flow, NBER Working Paper W13151.
  13. (2006). Fixed versus Flexible: Lessons from EMS Order Flow,
  14. (2007). Fragmentation or a plethora of choice – February FT mandate section
  15. (2000). Inefficient Markets: An Introduction to Behavioural Finance.
  16. (1997). Informed Traders, Intervention, and Price Leadership: A Deeper View of
  17. (1998). Is there Private Information in the FX Market? The Tokyo Experiment,
  18. (2005). Liquidity Provision in the Overnight Foreign Exchange Market,
  19. (2005). Meese-Rogoff Redux: Micro-Based Exchange Rate Forecasting,
  20. (1966). Mutual Fund Performance,
  21. (2006). On the Short-Term Predictability of Exchange Rates: A BVAR Time-Varying Parameters Approach,
  22. (1982). On Unit Roots and the Empirical Modeling of Exchange Rates,
  23. (2008). Order Flow and Exchange Rate Dynamics in Electronic Brokerage System Data,
  24. (2002). Order Flow and Exchange Rate Dynamics,
  25. (2007). Order Flow and Prices, American Finance Association, Chicago Meetings Paper.
  26. (1998). Profits and Position Control: A Week in FX Dealing,
  27. (1995). Tests of Microstructural Hypotheses in the Foreign Exchange Market,
  28. (2001). The Microstructure Approach to Exchange Rates.
  29. (2007). The Obstinate Passion of Foreign Exchange Professionals: Technical Analysis,

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.