We investigate high frequency price dynamics in foreign exchange market using data from Reuters information system (the dataset has been provided to us by Olsen and Associates). In our-analysis we show that a naive approach to the definition of price (for example using the spot mid price) may lead to wrong conclusions on price behavior as for example the presence of short term correlations for returns. For this purpose we introduce an algorithm which only uses the non arbitrage principle to estimate real prices from the spot ones. The new definition leads to returns which are not affected by spurious correlations. Furthermore, any apparent information (defined by using Shannon entropy) contained in the data disappears.

Spot foreign exchange market and time series

SERVA, Maurizio
2003-01-01

Abstract

We investigate high frequency price dynamics in foreign exchange market using data from Reuters information system (the dataset has been provided to us by Olsen and Associates). In our-analysis we show that a naive approach to the definition of price (for example using the spot mid price) may lead to wrong conclusions on price behavior as for example the presence of short term correlations for returns. For this purpose we introduce an algorithm which only uses the non arbitrage principle to estimate real prices from the spot ones. The new definition leads to returns which are not affected by spurious correlations. Furthermore, any apparent information (defined by using Shannon entropy) contained in the data disappears.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11697/18217
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