Intradaily Exchange Rate Movements

In the late 1980s, as the empirical appeal of macro-economic exchange rate models began to fade, a few people including Professor Charles Goodhart at the London School of Economics and researchers at Olsen & Associates in Zurich, started to collect intra-daily exchange rate data. The resulting database provides new insight into the foreign exchange markets and thereby opens up previously unexplored avenues of research. Intra-Daily Exchange Rate Movements presents an extensive study of the Olsen & Associates database and is one of the first monographs in this exciting new area.
This book aims to provide a systematic study of the characteristics of intra-daily exchange rate data as well as an empirical investigation into different approaches of modelling the exchange rate movements. First, the author describes empirical insights, which range from the distributional issues of exchange rate data to the impact of macroeconomic fundamentals and institutional characteristics. This leads to a survey of the main stylized facts. Using the O&A database, Guillaume then presents a systematic investigation of the empirical performance of three broad categories of models: macro-economic models using an extension of chaos theory, stochastic models including the GARCH and time-deformation models, and technical analysis. The book shows how these approaches can be used to model intra-daily exchange rate movements and highlights some of the pitfalls inherent in such an exercise. In an area where literature remains controversial, this book hopes to trigger further inquiries into the suitability of these different approaches to modelling.

1 A Typology of Foreign Exchange Rates Models.- 1.1 Models with fixed point.- 1.2 Models with multiple equilibria.- 1.3 Models with chaotic attractors.- 1.4 Models with multiple attractors.- 1.5 Models with no attractor.- 1.6 Models with no attractor but some structure.- 2 From the Bird’s Eye to the Microscope: A Survey of New Stylised Facts.- 2.1 Introduction.- 2.2 Description of the Foreign Exchange Market.- 2.3 Definition of the Variables of Interest.- 2.4 Stylised facts.- 2.5 Conclusion.- 2.6 Appendix.- 3 Chaos in the Foreign Exchange Markets.- 3.1 Methodology.- 3.2 Results.- 3.3 Conclusion.- 4 Sources of Nonlinearities in the Foreign Exchange Markets.- 4.1 Introduction.- 4.2 Methodology.- 4.3 Results.- 4.4 Conclusion.- 5 On the Intradaily Performance of GARCH Processes.- 5.1 Introduction.- 5.2 Description of the data.- 5.3 Alternative time scales.- 5.4 Results.- 5.5 Conclusion.- 5.6 Appendix.- 6 Do Technical Trading Rules Generate Profits?.- 6.1 Introduction.- 6.2 Data and methodology.- 6.3 Results.- 6.4 Conclusion.

Dominique Guillaume (1966) is currently at the International Monetary Fund. He holds a Ph.D. in Economics from the University of Louvain and is a former researcher at the Financial Markets Group at the London School of Economics and the Institute of Economics and Stastistics at Oxford University.