The Frequency of One-Day Abnormal Returns and Price Fluctuations in the Forex

43 Pages Posted: 7 Apr 2020

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Oleksiy Plastun

Sumy State University

Viktor Oliinyk

Sumy State University

Multiple version iconThere are 2 versions of this paper

Date Written: 2020

Abstract

This paper analyses the explanatory power of the frequency of abnormal returns in the FOREX for the EURUSD, GBRUSD, USDJPY, EURJPY, GBPCHF, AUDUSD and USDCAD exchange rates over the period 1994-2019. Abnormal returns are detected using a dynamic trigger approach; then the following hypotheses are tested: their frequency is a significant driver of price movements (H1); it does not exhibit seasonal patterns (H2); it is stable over time (H3). For our purposes a variety of statistical methods (both parametric and non-parametric) are applied including ADF tests, Granger causality tests, correlation analysis, (multiple) regression analysis, Probit and Logit regression models. No evidence is found of either seasonal patterns or instability. However, there appears to be a strong positive (negative) relationship between returns in the FOREX and the frequency of positive (negative) abnormal returns. On the whole, the results suggest that the latter is an important driver of price dynamics in the FOREX, is informative about crises and can be the basis of profitable trading strategies, which is inconsistent with market efficiency.

Keywords: FOREX, anomalies, price dynamics, frequency of abnormal returns

JEL Classification: G120, G170, C630

Suggested Citation

Caporale, Guglielmo Maria and Plastun, Oleksiy and Oliinyk, Viktor, The Frequency of One-Day Abnormal Returns and Price Fluctuations in the Forex (2020). CESifo Working Paper No. 8196, Available at SSRN: https://ssrn.com/abstract=3570300

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

Kingston Lane
Marie Jahoda Building
Uxbridge, Middlesex UB8 3PH
United Kingdom
+44 1895 266713 (Phone)
+44 1895 269770 (Fax)

HOME PAGE: http://www.brunel.ac.uk/about/acad/bbs/bbsstaff/ef_staff/guglielmocaporale/

London South Bank University ( email )

Centre for Monetary and Financial Economics
London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Oleksiy Plastun

Sumy State University ( email )

Rymskyi-Korsakov str., 2
Sumy, 40000
Ukraine

Viktor Oliinyk

Sumy State University ( email )

Rymskyi-Korsakov str., 2
Sumy, 40000
Ukraine

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
18
Abstract Views
106
PlumX Metrics