Indeterminacy in foreign exchange markets

Michele Pasquini and Maurizio Serva

Physica A: Statistical Mechanics and its Applications, 2000, vol. 277, issue 1, 228-238

Abstract: We discuss price variations distributions in foreign exchange markets, characterizing them both in calendar and business time frameworks. The price dynamics is found to be the result of two distinct processes, a multi-variance diffusion and an error process. The presence of the latter, which dominates at short time scales, leads to indeterminacy principle in finance. Furthermore, dynamics does not allow for a scheme based on independent probability distributions, since volatility exhibits a strong correlation even at the shortest time scales.

Keywords: Foreign exchange markets; High-frequency data; Indeterminacy principle; Multi-variance process; Error process (search for similar items in EconPapers)
Date: 2000
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:277:y:2000:i:1:p:228-238

DOI: 10.1016/S0378-4371(99)00589-0

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