Exchange Rate Determination and InterMarket speciate Flow Effects? J´ n Dan´elsson†Jinhui Luo‡ and Richard Payne§ o ? April 12, 2011 pluck The dependance of foreign veer rates on dress ?ow is investigated for quad major flip-flop rate pairs, EUR/USD, EUR/GBP, GBP/USD and USD/JPY, across take in frequencies ranging from 5 minutes to 1 week. Strong explanatory federal agency is detect for all sampling frequencies. We also uncover cross-market swan ?ow effects e.g. GBP swop rates ar very power uprighty in?uenced by EUR/USD night club ?ow. The Meese and Rogoff (1983a,b) framework is used to investigate the predictive power of order ?ow for qualify rate changes and it is shown that the order ?ow speci?cations crop RMSEs relative to a random head for all exchange rates at high-frequencies and for EUR/USD and USD/JPY at lower sampling frequencies. JEL: F0, F3, G1. Keywords: exchange rate determination, order ?ow to Charles Goodhart, Richard Lyons, the editors, an anonymous referee and participants in the 2002 Venice summer Institute for excellent comments. Thanks also to the lodge of England for providing the transactions data used in this study. All rest errors are our own. †Dept. of Fifaery and Financial Markets Group, London School of Economics, Houghton St, London, WC2A 2AE, U.K. e-mail: j.danielsson@lse.ac.uk.
weathervane: http://www.riskresearch.org/ ‡ ICBC, 55 Funingmennei Avenue, Beijing, China, 100032. Email: jinhui.luo@icbc.com.cn. § Faculty of Finance, Cass Business School, metropolis University, London, 106 Bunhill Row, London, EC1Y 8TZ, U. K. Email: richard.payne@city.ac.uk. ? Thank! s 1 Introduction Empirical models of exchange rate determination, especially at intermediate estimation horizons, harbour frustrated economists at least(prenominal) since the Meese and Rogoff (1983a,b) result that macrobased exchange rate models underperform a random walk model in predictive ability. In the empirical ?nance literature in that respect is, however, a long usance of studying the...If you want to draw off a full essay, order it on our website:
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