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Random Walk or A Run: Market Microstructure Analysis of the Foreign Exchange Rate Movements based on Conditional Probability

Title	Random Walk or A Run: Market Microstructure Analysis of the Foreign Exchange Rate Movements based on Conditional Probability
Creator	Creator Name Hashimoto, Yuko Hashimoto, Yuko 橋本, 優子橋本, 優子ハシモト, ユウコハシモト, ユウコ Affiliation Affiliation Name Toyo University
	Creator Name Ito, Takatoshi Ito, Takatoshi 伊藤, 隆敏伊藤, 隆敏イトウ, タカトシイトウ, タカトシ Affiliation Affiliation Name University of Tokyo
	Creator Name Ohnishi, Takaaki Ohnishi, Takaaki 大西, 立顕大西, 立顕 Affiliation Affiliation Name University of Tokyo
	Creator Name Takayasu, Misako Takayasu, Misako タカヤス, ミサコタカヤス, ミサコ Affiliation Affiliation Name Tokyo Institute of Technology
	Creator Name Takayasu, Hideki Takayasu, Hideki 高安, 秀樹高安, 秀樹タカヤス, ヒデキタカヤス, ヒデキ Affiliation Affiliation Name Sony Computer Science Laboratories
	Creator Name Watanabe, Tsutomu Watanabe, Tsutomu 渡辺, 努渡辺, 努ワタナベ, ツトムワタナベ, ツトム Affiliation Affiliation Name Hitotsubashi University
Editor	Contributor Name 日本経済の物価変動ダイナミクスの解明 = Understanding Inflation Dynamics of the Japanese Economy
Key Word	Foreign exchange rate
	electronic broking system
	random walk
	market microstructure
JEL	F31
	F33
	G15
Abstract	Using tick-by-tick data of the dollar-yen and euro-dollar exchange rates recorded in the actual transaction platform, a "run" - continuous increases or decreases in deal prices for the past several ticks - does have some predictable information on the direction of the next price movement. Deal price movements, that are consistent with order flows, tend to continue a run once it started i.e., conditional probability of deal prices tend to move in the same direction as the last several times in a row is higher than 0.5. However, quote prices do not show such tendency of a run. Hence, a random walk hypothesis is refuted in a simple test of a run using the tick by tick data. In addition, a longer continuous increase of the price tends to be followed by larger reversal. The findings suggest that those market participants who have access to real-time, tick-by-tick transaction data may have an advantage in predicting the exchange rate movement. Findings here also lend support to the momentum trading strategy.
Description	This version: June 10, 2008
Publisher	Research Center for Price Dynamics, Institute of Economic Research, Hitotsubashi University
Issued Date	2008-08-04
Language	English(eng)
Resource Type	technical report
Version Type	VoR
Is Part OfRelation -	Related Title Working Paper Series ; No. 25
Relation	Related Identifier URI http://www.ier.hit-u.ac.jp/~ifd/
Number of Pages	29
Sponsorship	日本学術振興会・科学研究費補助金（学術創成研究費） = JSPS Grant-in-Aid for Creative Scientific Research
Appears in Collections	Working Paper Series / Understanding Inflation Dynamics of the Japanese Economy
URL	https://hdl.handle.net/10086/15904

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