Random walk or a run
Subtitle: market microstructure analysis of the foreign exchange rate movements based on conditional probability
By: Yuko Hashimoto ... [et al.].
Contributors: Hashimoto, Yuko.; National Bureau of Economic Research.
Series: NBER working paper series -- working paper 14160; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 14160.
Publisher: National Bureau of Economic Research
Published: 2008
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "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"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 7/23/2008.

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