Graduate School of law and Politics
University of Tokyo
7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033, Japan
Institutional Affiliation: University of Tokyo
NBER Working Papers and Publications
|July 2008||Random Walk or A Run: Market Microstructure Analysis of the Foreign Exchange Rate Movements based on Conditional Probability|
with Yuko Hashimoto, Takatoshi Ito, Misako Takayasu, Hideki Takayasu, Tsutomu Watanabe: w14160
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 t...
Published: Yuko Hashimoto & Takatoshi Ito & Takaaki Ohnishi & Misako Takayasu & Hideki Takayasu & Tsutomu Watanabe, 2012. "Random walk or a run. Market microstructure analysis of foreign exchange rate movements based on conditional probability," Quantitative Finance, vol 12(6), pages 893-905.