Inverse Statistics in the Foreign Exchange Market

M. H. Jensen, A. Johansen, Filippo Petroni () and I. Simonsen
Additional contact information
M. H. Jensen: Niels Bohr Institute, Denmark
A. Johansen: My house, Humlebaek, Denmark
I. Simonsen: Department of Physics, NTNU, Trondheim, Norway

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Abstract: We investigate intra-day foreign exchange (FX) time series using the inverse statistic analysis developed in [1,2]. Specifically, we study the time-averaged distributions of waiting times needed to obtain a certain increase (decrease) $\rho$ in the price of an investment. The analysis is performed for the Deutsch mark (DM) against the $US for the full year of 1998, but similar results are obtained for the Japanese Yen against the $US. With high statistical significance, the presence of "resonance peaks" in the waiting time distributions is established. Such peaks are a consequence of the trading habits of the markets participants as they are not present in the corresponding tick (business) waiting time distributions. Furthermore, a new {\em stylized fact}, is observed for the waiting time distribution in the form of a power law Pdf. This result is achieved by rescaling of the physical waiting time by the corresponding tick time thereby partially removing scale dependent features of the market activity.

Date: 2004-02, Revised 2004-03
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Citations: View citations in EconPapers (7)

Published in Physica A 340, 678 (2004)

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