Real prices from spot foreign exchange market

Filippo Petroni () and Maurizio Serva

Physica A: Statistical Mechanics and its Applications, 2004, vol. 344, issue 1, 194-197

Abstract: In this work we discuss the problem of price definition when using high frequency foreign exchange data. If one uses the spot mid price a strong autocorrelation of returns, at one lag, is found which is only due to microstructure effect and does not capture the real behavior of price dynamics. This autocorrelation increases the intraday volatility estimated from this type of data. To solve this problem we introduce an algorithm which is able, by using the no-arbitrage principle, of eliminating every microstructure effects.

Keywords: Econophysics; Exchange market; High frequency (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:344:y:2004:i:1:p:194-197

DOI: 10.1016/j.physa.2004.06.115

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