An investigation of customer order flow in the foreign exchange market

Mario Cerrato, Nicholas Sarantis and Alex Saunders

Working Papers from Business School - Economics, University of Glasgow

Abstract: This paper examines the effect that heterogeneous customer orders flows have on exchange rates by using a new propreitary dataset of weekly net order flow segmented by customer type across nine of the most liquid currency pairs. We make three contributions. First, we investigate the extent to which order flow can help to explain exchange rate movements over and above the influence of macroeconomic variables. Second, we look at the usefulness of order flow in forecasting exchange rate movements at longer horizons than those generally considered in the microstructure literature. Finally we address the question of whether the out-of-sample exchange rate forecasts generated by order flows can be employed profitably in the foreign exchange markets.

Keywords: Customer order flow; exchange rates; microstructure; forecasting (search for similar items in EconPapers)
JEL-codes: F31 F41 G10 (search for similar items in EconPapers)
Date: 2009-07, Revised 2010-02
New Economics Papers: this item is included in nep-cba, nep-for, nep-ifn, nep-mon and nep-mst
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Related works:
Journal Article: An investigation of customer order flow in the foreign exchange market (2011)
Working Paper: An investigation of customer order flow in the foreign exchange market (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:gla:glaewp:2009_25

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