Connecting Equity and Foreign Exchange Markets Through the WM Fix: A Trading Strategy

17 Pages Posted: 15 Nov 2017 Last revised: 17 Aug 2018

See all articles by Arnav Sheth

Arnav Sheth

Saint Mary's College of California

Keisuke Teeple

University of California, Davis

Date Written: August 16, 2018

Abstract

We examine the relationship between equity and foreign exchange markets at, and around, the WM/Reuters benchmark exchange rate known as the the 'Fix'. Execution at the Fix is a service offered by brokers provided they obtain the trade order before 4pm GMT. We have three main goals with this paper: (i) to show a connection between equities and foreign exchange markets via this window; (ii) to leverage this connection using an algorithmic trading strategy; and (iii) to rank various statistical techniques used to make predictions for trading. We are successful in all three endeavors with the best technique producing an out-of-sample annual cumulative return of 4.02% with an annualized Sharpe ratio of 3.43.

Keywords: foreign exchange rates, market microstructure, WM/Reuters Fix, herd behavior

JEL Classification: C51, C52, C53, C58, D91, G41

Suggested Citation

Sheth, Arnav and Teeple, Keisuke, Connecting Equity and Foreign Exchange Markets Through the WM Fix: A Trading Strategy (August 16, 2018). Available at SSRN: https://ssrn.com/abstract=3069629 or http://dx.doi.org/10.2139/ssrn.3069629

Arnav Sheth (Contact Author)

Saint Mary's College of California ( email )

Graduate Business
380 Moraga Rd
Moraga, CA 94556
United States

Keisuke Teeple

University of California, Davis ( email )

Davis, CA
United States

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