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Predictability of currency market exchange

Author

Listed:
  • Ohira, Toru
  • Sazuka, Naoya
  • Marumo, Kouhei
  • Shimizu, Tokiko
  • Takayasu, Misako
  • Takayasu, Hideki

Abstract

We analyze tick data of yen–dollar exchange with a focus on its up and down movement. We show that there exists a rather particular conditional probability structure with such high frequency data. This result provides us with evidence to question one of the basic assumptions of the traditional market theory, where such bias in high frequency price movements is regarded as not present. We also construct systematically a random walk model reflecting this probability structure.

Suggested Citation

  • Ohira, Toru & Sazuka, Naoya & Marumo, Kouhei & Shimizu, Tokiko & Takayasu, Misako & Takayasu, Hideki, 2002. "Predictability of currency market exchange," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 308(1), pages 368-374.
    • Handle: RePEc:eee:phsmap:v:308:y:2002:i:1:p:368-374
    DOI: 10.1016/S0378-4371(02)00561-7
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    References listed on IDEAS

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    Cited by:

    1. Oya, Shunsuke & Aihara, Kazuyuki & Hirata, Yoshito, 2014. "An absolute measure for a key currency," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 407(C), pages 15-23.
    2. Mizuno, Takayuki & Kurihara, Shoko & Takayasu, Misako & Takayasu, Hideki, 2003. "Analysis of high-resolution foreign exchange data of USD-JPY for 13 years," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 324(1), pages 296-302.
    3. Fernández, Isabel & Hernández, Carmen N. & Pacheco, José M., 2003. "Is the North Atlantic Oscillation just a pink noise?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 323(C), pages 705-714.
    4. Ted Theodosopoulos & Alex Trifunovic, 2006. "Hybrid dynamics for currency modeling," Papers math/0605457, arXiv.org.
    5. Ryo Murakami & Tomomichi Nakamura & Shin Kimura & Masashi Manabe & Toshihiro Tanizawa, 2014. "On possible origins of trends in financial market price changes," Papers 1406.5276, arXiv.org, revised Nov 2014.
    6. Strozzi, Fernanda & Zaldívar, José-Manuel & Zbilut, Joseph P., 2007. "Recurrence quantification analysis and state space divergence reconstruction for financial time series analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 376(C), pages 487-499.
    7. Sazuka, Naoya & Ohira, Toru & Marumo, Kouhei & Shimizu, Tokiko & Takayasu, Misako & Takayasu, Hideki, 2003. "A dynamical structure of high frequency currency exchange market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 324(1), pages 366-371.
    8. Takayuki Mizuno & Shoko Kurihara & Misako Takayasu & Hideki Takayasu, 2002. "Analysis of high-resolution foreign exchange data of USD-JPY for 13 years," Papers cond-mat/0211162, arXiv.org.
    9. Hirata, Yoshito & Aihara, Kazuyuki, 2012. "Timing matters in foreign exchange markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(3), pages 760-766.
    10. Strozzi, F. & Zaldívar, J.M., 2005. "Non-linear forecasting in high-frequency financial time series," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 353(C), pages 463-479.
    11. Rechenthin, Michael & Street, W. Nick, 2013. "Using conditional probability to identify trends in intra-day high-frequency equity pricing," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(24), pages 6169-6188.
    12. Arthur Matsuo Yamashita Rios de Sousa & Hideki Takayasu & Misako Takayasu, 2017. "Detection of statistical asymmetries in non-stationary sign time series: Analysis of foreign exchange data," PLOS ONE, Public Library of Science, vol. 12(5), pages 1-18, May.
    13. Batten, Jonathan A. & Szilagyi, Peter G., 2007. "Covered interest parity arbitrage and temporal long-term dependence between the US dollar and the Yen," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 376(C), pages 409-421.
    14. Strozzi, Fernanda & Comenges, José-Manuel Zaldívar, 2006. "Towards a non-linear trading strategy for financial time series," Chaos, Solitons & Fractals, Elsevier, vol. 28(3), pages 601-615.
    15. Aiba, Yukihiro & Hatano, Naomichi, 2004. "Triangular arbitrage in the foreign exchange market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 344(1), pages 174-177.
    16. Koçak, Kasım, 2009. "Examination of persistence properties of wind speed records using detrended fluctuation analysis," Energy, Elsevier, vol. 34(11), pages 1980-1985.

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