Multiscale Analysis of Foreign Exchange Order Flows and Technical Trading Profitability

Nikola Gradojevic and Camillo Lento

Working Paper series from Rimini Centre for Economic Analysis

Abstract: This paper investigates the multiscale (frequency-dependent) relationship between technical trading profitability and feedback trading effects in the Canada/U.S. dollar foreign exchange market. The results suggest weak evidence that technical trading activities of financial and non-financial customers drive frequent violations of the FX market microstructure assumption that exchange rate movements are driven by order flow. After controlling for transaction costs, we find that the contribution of financial customers in feedback trading dominates the contribution of non-financial customers at lower frequencies, while the opposite holds at higher frequencies. In addition, the novel finding is that technical indicators constructed from order flows can be profitable.

Keywords: Foreign Exchange Markets; Order Flows; Technical Trading; Frequency Domain (search for similar items in EconPapers)
JEL-codes: C53 F31 G14 (search for similar items in EconPapers)
Date: 2012-06
New Economics Papers: this item is included in nep-mst
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Multiscale analysis of foreign exchange order flows and technical trading profitability (2015)
Working Paper: Multiscale analysis of foreign exchange order flows and technical trading profitability (2015)
Working Paper: Multiscale Analysis of Foreign Exchange Order Flows and Technical Trading Profitability (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:rim:rimwps:31_12

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