Order Flow and Exchange Rate Dynamics

Martin Evans and Richard Lyons ()

Journal of Political Economy, 2002, vol. 110, issue 1, 170-180

Abstract: This paper presents an exchange rate model of a new kind. Instead of relying exclusively on macroeconomic determinants, the model includes a determinant from the field of microstructure financeorder flow. Order flow is a determinant because it conveys information. This is a radically different approach to exchange rates. It is also strikingly successful. Our model of daily deutsche mark/dollar log changes produces an R2 statistic above 60 percent. For the deutsche mark/dollar spot market as a whole, we find that $1 billion of net dollar purchases increases the deutsche mark price of a dollar by 0.5 percent.

Date: 2002
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Related works:
Chapter: Order Flow and Exchange Rate Dynamics (2017)
Working Paper: Order Flow and Exchange Rate Dynamics (1999)
Working Paper: Order Flow and Exchange Rate Dynamics (1999)
Working Paper: Order Flow and Exchange Rate Dynamics (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:ucp:jpolec:v:110:y:2002:i:1:p:170-180

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