Intraday Price Reversal Patterns in the Currency Futures Market: The Impact of the Introduction of Globex and the Euro

Journal of Futures Markets, 2006

Posted: 23 Feb 2006

See all articles by Joel Rentzler

Joel Rentzler

City University of New York (CUNY) - Baruch College

Kishore Tandon

CUNY Baruch College - Zicklin School of Business

Susana Yu

Iona College

Abstract

This paper assesses the intraday price reversal patterns of seven major currency futures contracts traded on the Chicago Mercantile Exchange over 1988-2003 after one-day returns and opening gaps. We observe significant intraday price reversal patterns in five of the seven currency futures contracts, following large price changes. We conduct additional tests in three sub-periods (1988-1992, 1993-1998 and 1999-2003) to examine the impact of the introduction of electronic trading on GLOBEX in 1992 (to assess how a near 24-hour trading session might impact the next day opening and closing futures prices) and the introduction of the Euro in 1999 (to assess its impact on price predictability in other futures markets). We find that the introduction of the GLOBEX in 1992 significantly reduced pricing errors in currency futures in the second sub-period making the currency futures markets fairly efficient. However, the introduction of the new currency, the Euro, and the disappearance of several European currencies in 1999, resulted in significant price patterns (mostly reversals and some persistence) in most of the currency futures, indicating inefficiencies in the third sub-period.

Keywords: market efficiency, futures markets

JEL Classification: G14

Suggested Citation

Rentzler, Joel and Tandon, Kishore and Yu, Susana, Intraday Price Reversal Patterns in the Currency Futures Market: The Impact of the Introduction of Globex and the Euro. Available at SSRN: https://ssrn.com/abstract=885686

Joel Rentzler (Contact Author)

City University of New York (CUNY) - Baruch College ( email )

17 Lexington Avenue
New York, NY 10010
United States

Kishore Tandon

CUNY Baruch College - Zicklin School of Business ( email )

55 Lexington Avenue
New York, NY 10010
United States
(646) 312-3468 (Phone)
(646) 312-3451 (Fax)

Susana Yu

Iona College ( email )

715 North Avenue
New Rochelle, NY 10801
United States

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