Connecting Equity and Foreign Exchange Markets Through the WM Fix: A Trading Strategy

We examine the relationship between equity and foreign exchange markets at, and around, the WM/Reuters benchmark exchange rate known as the the 'Fix'. Execution at the Fix is a service offered by brokers provided they obtain the trade order before 4pm GMT. We have three main goals with this paper: (i) to show a connection between equities and foreign exchange markets via this window; (ii) to leverage this connection using an algorithmic trading strategy; and (iii) to rank various statistical techniques used to make predictions for trading. We are successful in all three endeavors with the best technique producing an out-of-sample annual cumulative return of 4.02% with an annualized Sharpe ratio of 3.43.