A research proposal for higher forecasting power in the foreign exchange markets.
Written in 2008; 2,408 words; 10 sources; APA; $ 73.95
Paper Summary:
This research paper investigates the introduction of a higher forecasting power in predicting the foreign exchange rates, than the current conventional macroeconomic fundamentals. The research works on the E/$ currency pair only and is aimed at exploring the impact of micro-structure in a high frequency trading behavior. It also examines whether the feedback trading phenomenon is also observed in the high frequency trading activities, so as to establish a more comprehensive and accurate forecasting model.
Outline:
Introduction
Micro structures
Literature Reviews
Data Collection
Research Study
Conclusions
From the Paper:
"Microstructure has become increasingly important in the foreign exchange markets in the recent years; it has been suggested to have a higher forecasting power in predicting the foreign exchange rates than the conventional macroeconomic fundamentals. A series of academic research have been undertaken and show some evidential supports for this notion. However, by and to a large extent, these studies mainly focus on the lower frequency data, ranging from days to weeks, while studies based on a higher frequency, i.e. from minutes to hours is much rarer. Since the trading behaviour is less dependent or hardly relied on the fundamental elements within a short period of time, thus it is interesting to test whether the microstructure has a more influential impact on the foreign exchange rates in a higher frequency trading activity. In addition, recent literatures have suggested a reverse relationship between the customer order flows and foreign exchange rates (Marsh & O'Rourke, 2004), i.e., the customer order flows are dependent on the foreign exchange rate from the previous test period, rather than driving the foreign exchange rate in the next following test period. This feedback trading behaviour is also worth exploring, in order to reveal whether a complicated and interacted relationship exists between the two."
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