An investigation of customer order flow in the foreign exchange market

Mario Cerrato, Nicholas Sarantis and Alex Saunders

Journal of Banking & Finance, 2011, vol. 35, issue 8, 1892-1906

Abstract: This paper examines the effect that heterogeneous customer orders flows have on exchange rates by using a new, and the largest, proprietary dataset of weekly net order flow segmented by customer type across nine of the most liquid currency pairs. We make several contributions. Firstly, we investigate the extent to which customer order flow can help to explain exchange rate movements over and above the influence of macro-economic variables. Secondly, we address the issue of whether order flows contain (private) information which explain exchange rates changes. Thirdly, we look at the usefulness of order flow in forecasting exchange rate movements at longer horizons than those generally considered in the micro-structure 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; Micro-structure; Forecasting (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (16)

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Related works:
Working Paper: An investigation of customer order flow in the foreign exchange market (2010)
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:eee:jbfina:v:35:y:2011:i:8:p:1892-1906

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