Timing Exchange Rates Using Order Flow: The Case of the Loonie

36 Pages Posted: 10 Mar 2010

See all articles by Michael R. King

Michael R. King

Ivey Business School

Lucio Sarno

City University London - Sir John Cass Business School; Centre for Economic Policy Research (CEPR)

Elvira Sojli

UNSW Business School, School of Banking and Finance

Date Written: March 8, 2010

Abstract

This paper examines the relation between the Canadian dollar / US dollar (CAD) exchange rate and foreign exchange order flow employing a novel data set on CAD order flow over the period 1994-2005. We investigate empirically the predictive information content and the determinants of order flow. The results suggest that order flow has strong out-of-sample predictive power for CAD returns, yielding significant market timing ability and tangible economic gains in a stylized dynamic asset allocation context. In terms of its determinants, order flow appears to reflect not only the menu of macroeconomic variables typically suggested in the literature but is also closely related to commodity price fluctuations, as expected from a 'commodity currency.'

Keywords: Order flow, Canadian dollar, Future commodity

JEL Classification: E44, F31, G10

Suggested Citation

King, Michael Robert and Sarno, Lucio and Sojli, Elvira, Timing Exchange Rates Using Order Flow: The Case of the Loonie (March 8, 2010). Journal of Banking and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1566895 or http://dx.doi.org/10.2139/ssrn.1566895

Michael Robert King

Ivey Business School ( email )

Western University
1255 Western Road
London, Ontario N6G 0N1
Canada
519 661 3084 (Phone)

HOME PAGE: http://www.ivey.uwo.ca/faculty/directory/michael-king/

Lucio Sarno

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Elvira Sojli (Contact Author)

UNSW Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

HOME PAGE: http://sites.google.com/site/esojli/

Register to save articles to
your library

Register

Paper statistics

Downloads
148
rank
194,419
Abstract Views
844
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information