Markovian approximation in foreign exchange markets
Abstract
In this paper we test the random walk hypothesis on the high frequency dataset of the bid--ask Deutschemark/US dollar exchange rate quotes registered by the inter-bank Reuters network over the period October 1, 1992 to September 30, 1993. Then we propose a stochastic model for price variation which is able to describe some important features of the exchange market behavior. Besides the usual correlation analysis we have verified the validity of this model by means of other approaches inspired by information theory . These techniques are not only severe tests of the approximation but also evidence some aspects of the data series which have a clear financial relevance.
Keywords
Cite
@article{arxiv.cond-mat/9903144,
title = {Markovian approximation in foreign exchange markets},
author = {R. Baviera and D. Vergni and A. Vulpiani},
journal= {arXiv preprint arXiv:cond-mat/9903144},
year = {2009}
}
Comments
19 pages, LaTeX, uses elsart.cls and JournalOfFinance.sty, 7 eps figures, submitted to J. of Int. Money and Finance