{"title":"Price behavior and Hurst exponents of tick-by-tick interbank foreign exchange rates","authors":"J. Moody, Lizhong Wu","doi":"10.1109/CIFER.1995.495228","DOIUrl":null,"url":null,"abstract":"Our previous analysis of tick-by-tick interbank foreign exchange (FX) rates has suggested that the market is not efficient on short time scales. We find that the price changes show mean-reverting rather than random-walk behavior (Moody and Wu, 1994). The results of rescaled range and Hurst exponent analysis presented in the first part of this paper further confirms the mean-reverting attribute in the FX data. The second part of this paper reports on the highly significant correlations between Bid/Ask spreads, volatility and forecastability found in the FX data. These interactions show that higher volatility results in higher forecast error and increased risk for market makers, and that, to compensate for this increase in risk, market makers increase their Bid/Ask spreads.","PeriodicalId":374172,"journal":{"name":"Proceedings of 1995 Conference on Computational Intelligence for Financial Engineering (CIFEr)","volume":"20 1","pages":"0"},"PeriodicalIF":0.0000,"publicationDate":"1995-04-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"9","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Proceedings of 1995 Conference on Computational Intelligence for Financial Engineering (CIFEr)","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.1109/CIFER.1995.495228","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
引用次数: 9
Abstract
Our previous analysis of tick-by-tick interbank foreign exchange (FX) rates has suggested that the market is not efficient on short time scales. We find that the price changes show mean-reverting rather than random-walk behavior (Moody and Wu, 1994). The results of rescaled range and Hurst exponent analysis presented in the first part of this paper further confirms the mean-reverting attribute in the FX data. The second part of this paper reports on the highly significant correlations between Bid/Ask spreads, volatility and forecastability found in the FX data. These interactions show that higher volatility results in higher forecast error and increased risk for market makers, and that, to compensate for this increase in risk, market makers increase their Bid/Ask spreads.
我们之前对银行间外汇汇率变动的分析表明,市场在短期内并不有效。我们发现价格变化表现为均值回归而非随机游走行为(Moody and Wu, 1994)。本文第一部分的重标极差和Hurst指数分析结果进一步证实了外汇数据的均值回归属性。本文的第二部分报告了在外汇数据中发现的买卖价差、波动性和可预测性之间的高度显著相关性。这些相互作用表明,更高的波动性导致更高的预测误差和做市商的风险增加,并且,为了补偿这种风险的增加,做市商增加了他们的买卖价差。