Microstructure order flow: statistical and economic evaluation of nonlinear forecasts

Mario Cerrato, Hyunsok Kim and Ronald MacDonald

Working Papers from Business School - Economics, University of Glasgow

Abstract: In this paper we propose a novel empirical extension of the standard market microstructure order flow model. The main idea is that heterogeneity of beliefs in the foreign exchange market can cause model instability and such instability has not been fully accounted for in the existing empirical literature. We investigate this issue using two different data sets and focusing on out- of-sample forecasts. Forecasting power is measured using standard statistical tests and, additionally, using an alternative approach based on measuring the economic value of forecasts after building a portfolio of assets. We nd there is a substantial economic value on conditioning on the proposed models.

Keywords: microstructure; order flow; forecasting (search for similar items in EconPapers)
JEL-codes: F31 F41 G10 (search for similar items in EconPapers)
Date: 2010-12
New Economics Papers: this item is included in nep-for, nep-mic and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.gla.ac.uk/media/media_182842_en.pdf (application/pdf)

Related works:
Journal Article: Microstructure order flow: statistical and economic evaluation of nonlinear forecasts (2015)
Working Paper: Microstructure Order Flow: Statistical and Economic Evaluation of Nonlinear Forecasts (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gla:glaewp:2010_30

Access Statistics for this paper

More papers in Working Papers from Business School - Economics, University of Glasgow Contact information at EDIRC.
Bibliographic data for series maintained by Business School Research Team ().