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Spot foreign exchange market and time series

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  • F. Petroni
  • M. Serva

Abstract

We investigate high frequency price dynamics in foreign exchange market using data from Reuters information system (the dataset has been provided to us by Olsen and Associates). In our analysis we show that a naïve approach to the definition of price (for example using the spot mid price) may lead to wrong conclusions on price behavior as for example the presence of short term correlations for returns. For this purpose we introduce an algorithm which only uses the non arbitrage principle to estimate real prices from the spot ones. The new definition leads to returns which are not affected by spurious correlations. Furthermore, any apparent information (defined by using Shannon entropy) contained in the data disappears. Copyright Springer-Verlag Berlin/Heidelberg 2003

Suggested Citation

  • F. Petroni & M. Serva, 2003. "Spot foreign exchange market and time series," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 34(4), pages 495-500, August.
    • Handle: RePEc:spr:eurphb:v:34:y:2003:i:4:p:495-500
    DOI: 10.1140/epjb/e2003-00249-5
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    References listed on IDEAS

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    1. Gençay, Ramazan & Dacorogna, Michel & Muller, Ulrich A. & Pictet, Olivier & Olsen, Richard, 2001. "An Introduction to High-Frequency Finance," Elsevier Monographs, Elsevier, edition 1, number 9780122796715.
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    Cited by:

    1. Guglielmo D'Amico & Filippo Petroni, 2012. "Weighted-indexed semi-Markov models for modeling financial returns," Papers 1205.2551, arXiv.org, revised Jun 2012.
    2. Guglielmo D'Amico & Filippo Petroni, 2011. "A semi-Markov model with memory for price changes," Papers 1109.4259, arXiv.org, revised Dec 2011.
    3. G. D'Amico & F. Petroni & F. Prattico, 2013. "Semi-Markov Models in High Frequency Finance: A Review," Papers 1312.3894, arXiv.org.
    4. Guglielmo D'Amico & Filippo Petroni, 2020. "A micro-to-macro approach to returns, volumes and waiting times," Papers 2007.06262, arXiv.org.
    5. Guglielmo D'Amico & Filippo Petroni, 2013. "Multivariate high-frequency financial data via semi-Markov processes," Papers 1305.0436, arXiv.org.

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