What does currency order flow tell about spot exchange rates of Asian emerging markets?
Document Type
Article
Publication Date
9-1-2021
Abstract
This study investigates the role of currency order flow in explaining the emerging Asian markets' exchange rates relying on linear and nonlinear modeling. The daily currency order flow of the US dollar relative to the nine important Asian currencies is constituted and explored with the respective exchange rates. First, we find that order flow affects the spot exchange rate positively for the sampled Asian currencies which indicates that the buying pressure of the US dollar depreciates Asian currencies. Second, the effect of order flow is asymmetric which explains that a surge and a fall in order flow have different effects on the exchange rate. This study unlocks the contribution of the market microstructure research where the asymmetries improve the power to explicate exchange rates. The nonlinear model forecasting performance validates this stance. Copyright (C) 2020, Borsa Istanbul Anonim Sirketi. Production and hosting by Elsevier B.V.
Keywords
Currency order flow, Exchange rate, Asymmetric relationship, Market microstructure, Emerging markets
Divisions
Finance_and_Banking
Funders
Higher Education Commission of Pakistan (296.135/TG/R&D/HEC/2017/26482)
Publication Title
Borsa Istanbul Review
Volume
21
Issue
3
Publisher
Elsevier
Publisher Location
RADARWEG 29, 1043 NX AMSTERDAM, NETHERLANDS