The Accuracy of Trade Classification Systems on the Foreign Exchange Market: Evidence from the RUB/USD Market

Michael Frömmel, Dick D'Hoore and Kevin Lampaert

Finance Research Letters, 2021, vol. 42, issue C

Abstract: To the best of our knowledge we are the first to test a broad set of trade classification rules on the foreign exchange interbank market. A unique data set on the Russian Rouble/US Dollar trade includes the true trade initiator. The modified EMO (Ellis, Michaely and O'Hara) rule is currently the best choice at classifying trades. When quote data is not present, the tick rule yields a considerably lower accuracy. Yearly variations in the accuracy can be attributed to the difference in the location where trades occurred. Not surprisingly, trades executed at the quotes are the most informative.

Keywords: microstructure; foreign exchange; trade classification; Russian Rouble; tick rule; quote rule; bulk classification (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:42:y:2021:i:c:s1544612320317062

DOI: 10.1016/j.frl.2020.101892

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