Explaining exchange rate movements: An application of the market microstructure approach on the Pakistani foreign exchange market

Abdul Jalil and Mete Feridun

No 7926, Greenwich Papers in Political Economy from University of Greenwich, Greenwich Political Economy Research Centre

Abstract: This present article aims at explaining the exchange rate movements in the Pakistani foreign exchange market using the market micro structure approach, which has not been applied to date due to the unavailability of high-frequency data on the order flow for Pakistan. The novelty of the present article is that it uses publicly unavailable micro data obtained from the State Bank of Pakistan and that it employs ARCH/GARCH regression methods in addition to the OLS technique suggested by the existing literature. Strong evidence emerged suggesting that order flow is a key variable that explains the movements in exchange rate over a short term in the case of Pakistan.

Keywords: market microstructure; order flow; Pakistan (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (1)

Published in The Journal of Developing Areas 1.44(2010): pp. 255-265

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