IDEAS home Printed from https://ideas.repec.org/a/eee/phsmap/v277y2000i1p228-238.html
   My bibliography  Save this article

Indeterminacy in foreign exchange markets

Author

Listed:
  • Pasquini, Michele
  • Serva, Maurizio

Abstract

We discuss price variations distributions in foreign exchange markets, characterizing them both in calendar and business time frameworks. The price dynamics is found to be the result of two distinct processes, a multi-variance diffusion and an error process. The presence of the latter, which dominates at short time scales, leads to indeterminacy principle in finance. Furthermore, dynamics does not allow for a scheme based on independent probability distributions, since volatility exhibits a strong correlation even at the shortest time scales.

Suggested Citation

  • Pasquini, Michele & Serva, Maurizio, 2000. "Indeterminacy in foreign exchange markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 277(1), pages 228-238.
    • Handle: RePEc:eee:phsmap:v:277:y:2000:i:1:p:228-238
    DOI: 10.1016/S0378-4371(99)00589-0
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0378437199005890
    Download Restriction: Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000
    File URL: https://libkey.io/10.1016/S0378-4371(99)00589-0?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Baillie, Richard T & Bollerslev, Tim, 1994. "The long memory of the forward premium," Journal of International Money and Finance, Elsevier, vol. 13(5), pages 565-571, October.
    2. Pagan, Adrian, 1996. "The econometrics of financial markets," Journal of Empirical Finance, Elsevier, vol. 3(1), pages 15-102, May.
    3. Ding, Zhuanxin & Granger, Clive W. J. & Engle, Robert F., 1993. "A long memory property of stock market returns and a new model," Journal of Empirical Finance, Elsevier, vol. 1(1), pages 83-106, June.
    4. Baillie, Richard T., 1996. "Long memory processes and fractional integration in econometrics," Journal of Econometrics, Elsevier, vol. 73(1), pages 5-59, July.
    5. Yanhui Liu & Parameswaran Gopikrishnan & Pierre Cizeau & Martin Meyer & Chung-Kang Peng & H. Eugene Stanley, 1999. "The statistical properties of the volatility of price fluctuations," Papers cond-mat/9903369, arXiv.org, revised Mar 1999.
    6. Pasquini, Michele & Serva, Maurizio, 1999. "Multiscale behaviour of volatility autocorrelations in a financial market," Economics Letters, Elsevier, vol. 65(3), pages 275-279, December.
    7. Crato, Nuno & de Lima, Pedro J. F., 1994. "Long-range dependence in the conditional variance of stock returns," Economics Letters, Elsevier, vol. 45(3), pages 281-285.
    8. Benoit Mandelbrot, 2015. "The Variation of Certain Speculative Prices," World Scientific Book Chapters, in: Anastasios G Malliaris & William T Ziemba (ed.), THE WORLD SCIENTIFIC HANDBOOK OF FUTURES MARKETS, chapter 3, pages 39-78, World Scientific Publishing Co. Pte. Ltd..
    9. De Jong, Frank & Mahieu, Ronald & Schotman, Peter, 1998. "Price discovery in the foreign exchange market: an empirical analysis of the yen/dmark rate1, 2," Journal of International Money and Finance, Elsevier, vol. 17(1), pages 5-27, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Berardi, Luca & Serva, Maurizio, 2005. "Time and foreign exchange markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 353(C), pages 403-412.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Michele Pasquini & Maurizio Serva, 1999. "Indeterminacy in foreign exchange market," Papers cond-mat/9906343, arXiv.org.
    2. Baviera, Roberto & Pasquini, Michele & Serva, Maurizio & Vergni, Davide & Vulpiani, Angelo, 2001. "Correlations and multi-affinity in high frequency financial datasets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 300(3), pages 551-557.
    3. Pasquini, Michele & Serva, Maurizio, 1999. "Multiscale behaviour of volatility autocorrelations in a financial market," Economics Letters, Elsevier, vol. 65(3), pages 275-279, December.
    4. Petroni, Filippo & Serva, Maurizio, 2016. "Observability of market daily volatility," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 444(C), pages 838-842.
    5. Iori, Giulia, 2002. "A microsimulation of traders activity in the stock market: the role of heterogeneity, agents' interactions and trade frictions," Journal of Economic Behavior & Organization, Elsevier, vol. 49(2), pages 269-285, October.
    6. Filippo Petroni & Maurizio Serva, 2015. "Observability of Market Daily Volatility," Papers 1503.08032, arXiv.org.
    7. Baillie, Richard T. & Bollerslev, Tim & Mikkelsen, Hans Ole, 1996. "Fractionally integrated generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 74(1), pages 3-30, September.
    8. Sun-Chong Wang & Sai-Ping Li & Chung-Ching Tai & Shu-Heng Che, 2009. "Statistical properties of an experimental political futures market," Quantitative Finance, Taylor & Francis Journals, vol. 9(1), pages 9-16.
    9. Gabaix, Xavier & Gopikrishnan, Parameswaran & Plerou, Vasiliki & Eugene Stanley, H., 2008. "Quantifying and understanding the economics of large financial movements," Journal of Economic Dynamics and Control, Elsevier, vol. 32(1), pages 303-319, January.
    10. Pagan, Adrian, 1996. "The econometrics of financial markets," Journal of Empirical Finance, Elsevier, vol. 3(1), pages 15-102, May.
    11. Stanley, H.E. & Gopikrishnan, P. & Plerou, V. & Amaral, L.A.N., 2000. "Quantifying fluctuations in economic systems by adapting methods of statistical physics," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 287(3), pages 339-361.
    12. Lux, Thomas, 2008. "Stochastic behavioral asset pricing models and the stylized facts," Kiel Working Papers 1426, Kiel Institute for the World Economy (IfW Kiel).
    13. Youwei Li & Xue-Zhong He, 2005. "Long Memory, Heterogeneity, and Trend Chasing," Computing in Economics and Finance 2005 113, Society for Computational Economics.
    14. E. Samanidou & E. Zschischang & D. Stauffer & T. Lux, 2001. "Microscopic Models of Financial Markets," Papers cond-mat/0110354, arXiv.org.
    15. Deniz Erdemlioglu & Sébastien Laurent & Christopher J. Neely, 2013. "Econometric modeling of exchange rate volatility and jumps," Chapters, in: Adrian R. Bell & Chris Brooks & Marcel Prokopczuk (ed.), Handbook of Research Methods and Applications in Empirical Finance, chapter 16, pages 373-427, Edward Elgar Publishing.
    16. Hernández-Pérez, R., 2012. "Allan deviation analysis of financial return series," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(9), pages 2883-2888.
    17. Xue-Zhong He & Youwei Li, 2017. "The adaptiveness in stock markets: testing the stylized facts in the DAX 30," Journal of Evolutionary Economics, Springer, vol. 27(5), pages 1071-1094, November.
    18. Jonathan Manton & Anton Muscatelli & Vikram Krishnamurthy & Stan Hurn, "undated". "Modelling Stock Market Excess Returns by Markov Modulated Gaussian Noise," Working Papers 9806, Business School - Economics, University of Glasgow.
    19. Thilo A. Schmitt & Rudi Schafer & Holger Dette & Thomas Guhr, 2015. "Quantile Correlations: Uncovering temporal dependencies in financial time series," Papers 1507.04990, arXiv.org.
    20. Mittnik, Stefan & Paolella, Marc S. & Rachev, Svetlozar T., 2002. "Stationarity of stable power-GARCH processes," Journal of Econometrics, Elsevier, vol. 106(1), pages 97-107, January.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:phsmap:v:277:y:2000:i:1:p:228-238. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.