Does Foreign Exchange Volume Activity Predict Foreign Exchange Returns? Evidence from Buy-Sell Volume in the Euro-Dollar Market

David Spohn

Applied Finance and Accounting, 2018, vol. 4, issue 2, 15-28

Abstract: This paper investigates the predictive ability of lagged buy-sell volume on current foreign exchange returns. Using novel Euro-Dollar foreign exchange market data from 2007 to 2015, we show that the buy-sell volume has an inverse correlation with current foreign exchange returns. Using conditional regression analysis, buy-sell volumes predict subsequent Euro-Dollar returns. We divide the data into two sub-samples. We use the first sub-sample to create a trading rule, and we use the second sub-sample to test the rule. After adjusting for time-varying calendar effects, we find that a profitable trading strategy exists using only buy-sell volume to predict returns.

Keywords: foreign exchange; behavioral finance; currency returns; investment (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:rfa:afajnl:v:4:y:2018:i:2:p:15-28

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