scholarly journals Structural Interdependence of Price and Demand in a Model of the Foreign Exchange Market with Heterogeneous Speculators: Evidence from High-frequency Data

2020 ◽  
Author(s):  
Leonardo Bargigli ◽  
Giulio Cifarelli
Keyword(s):  
Foreign Exchange ◽  
High Frequency ◽  
Foreign Exchange Market ◽  
High Frequency Data ◽  
Frequency Data ◽  
Exchange Market ◽  
Structural Interdependence

scholarly journals THE MIRAGE OF TRIANGULAR ARBITRAGE IN THE SPOT FOREIGN EXCHANGE MARKET

2009 ◽  
Vol 12 (08) ◽  
pp. 1105-1123 ◽  
Author(s):  
DANIEL J. FENN ◽  
SAM D. HOWISON ◽  
MARK MCDONALD ◽  
STACY WILLIAMS ◽  
NEIL F. JOHNSON
Keyword(s):  
Market Efficiency ◽  
Foreign Exchange ◽  
High Frequency ◽  
Foreign Exchange Market ◽  
Exchange Market ◽  
Market Participants ◽  
Pricing Efficiency ◽  
Arbitrage Opportunities ◽  
Self Consistent

We investigate triangular arbitrage within the spot foreign exchange market using high-frequency executable prices. We show that triangular arbitrage opportunities do exist, but that most have short durations and small magnitudes. We find intra-day variations in the number and length of arbitrage opportunities, with larger numbers of opportunities with shorter mean durations occurring during more liquid hours. We demonstrate further that the number of arbitrage opportunities has decreased in recent years, implying a corresponding increase in pricing efficiency. Using trading simulations, we show that a trader would need to beat other market participants to an unfeasibly large proportion of arbitrage prices to profit from triangular arbitrage over a prolonged period of time. Our results suggest that the foreign exchange market is internally self-consistent and provide a limited verification of market efficiency.

scholarly journals Currency Hedging Strategies Using Histogram-Valued Data: Bivariate Markov Switching GARCH Models

Mathematics ◽  
2021 ◽  
Vol 9 (21) ◽  
pp. 2773
Author(s):  
Paravee Maneejuk ◽  
Nootchanat Pirabun ◽  
Suphawit Singjai ◽  
Woraphon Yamaka
Keyword(s):  
High Frequency ◽  
Foreign Exchange Market ◽  
Markov Switching ◽  
High Frequency Data ◽  
Garch Models ◽  
Frequency Data ◽  
Hedge Ratio ◽  
Hedging Strategies ◽  
Hedging Effectiveness ◽  
Intraday Data

Previous studies aimed at determining hedging strategies commonly used daily closing spot and futures prices for the analysis and strategy building. However, the daily closing price might not be the appropriate for price in some or all trading days. This is because the intraday data at various minute intervals, in our view, are likely to better reflect the information about the concrete behavior of the market returns and reactions of the market participants. Therefore, in this study, we propose using high-frequency data along with daily data in an attempt to determine hedging strategies, using five major international currencies against the American dollar. Specifically, in our study we used the 5-min, 30-min, 60-min, and daily closing prices of the USD/CAD (Canadian Dollar), USD/CNY (Chinese Yuan), USD/EUR (Euro), USD/GBP (British Pound), and USD/JPY (Japanese Yen) pairs over the 2018–2019 period. Using data at 5-min, 30-min, and 60-min intervals or high-frequency data, however, means the use of a relatively large number of observations for information extractions in general and econometric model estimations, making data processing and analysis a rather time-consuming and complicated task. To deal with such drawbacks, this study collected the high-frequency data in the form of a histogram and selected the representative daily price, which does not have to be the daily closing value. Then, these histogram-valued data are used for investigating the linear and nonlinear relationships and the volatility of the interested variables by various single- and two-regime bivariate GARCH models. Our results indicate that the Markov Switching Dynamic Copula-Generalized autoregressive conditional heteroskedasticity (GARCH) model performs the best with the lowest BIC and gives the highest overall value of hedging effectiveness (HE) compared with the other models considered in the present endeavor. Consequently, we can conclude that the foreign exchange market for both spot and futures trading has a nonlinear structure. Furthermore, based on the HE results, the best derivatives instrument is CAD using one-day frequency data, while GBP using 30-min frequency data is the best considering the highest hedge ratio. We note that the derivative with the highest hedging effectiveness might not be the one with the highest hedge ratio.

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