簡易檢索 / 詳目顯示

研究生: 李律
Bentley, Joshua
論文名稱: Is the Foreign Exchange Market Efficient? A Study of Weekend Price Gaps
Is the Foreign Exchange Market Efficient? A Study of Weekend Price Gaps
指導教授: 張紹基
Chang, Shao-Chi
學位類別: 碩士
Master
系所名稱: 管理學院 - 國際經營管理研究所碩士班
Institute of International Management (IIMBA--Master)
論文出版年: 2011
畢業學年度: 99
語文別: 英文
論文頁數: 277
外文關鍵詞: Forex, Fx, Spot Foreign Exchange, Technical Trading, Weekend Price Gaps, Price Change, Price Reversals, Price Patterns, Market Behavior, Market Open Phenomenon, Abnormal Returns, Excessive Returns, Market Efficiency, Market Inefficiency
相關次數: 點閱:120下載:1
分享至:
查詢本校圖書館目錄 查詢臺灣博碩士論文知識加值系統 勘誤回報
  • The foreign exchange market is by far the largest and most truly global market in the world with an incredibly diverse pool of market participants and trading not limited to any single exchange or governmental/regulatory jurisdiction. The scale and characteristics of the foreign exchange market make it the market of the world which, according to assumptions of efficient market theory, should be the most efficient market in the world. This paper seeks to question market efficiency in the foreign exchange market through a focus on the non-interbank spot foreign exchange segment of the market.

    Of total daily foreign exchange market activity, spot transactions represent over one-third of all transactions within the global foreign exchange market, with spot turnover reaching $1.5 trillion daily in April 2010 (Kleist, Mallo, Grouchko, & Mesny, 2010). Non-interbank spot trading contributes the largest portion of trading volume to overall spot foreign exchange turnover; however, the non-interbank foreign exchange market remains largely unexplored by academic research. This paper therefore fills a significant void in the literature in approaching the non-interbank spot foreign exchange market focusing upon the question of market efficiency through exploration and analysis of a market phenomenon that to the author's knowledge has not been explored by academic research previous to this paper.

    Specifically, this paper explores market efficiency through examination of patterns of temporary short-term price reversals occurring during the opening hours of the market following the occurrence of weekend price gaps. This paper pursues three primary objectives: 1) to document the phenomena and its characteristics; 2) to examine theories through literature review which may offer possible explanation of how and why the phenomena occur; and 3) to demonstrate the potential to realize abnormal returns in the non-interbank spot foreign exchange market with a simple technical strategy for trading short-term price reversals during the opening hours of the market following the occurrence of weekend price gaps, thereby providing evidence of market inefficiency.

    ACKNOWLEDGEMENTS IV ABSTRACT V TABLE OF CONTENTS VII LIST OF TABLES XIII LIST OF FIGURES XV CHAPTER ONE INTRODUCTION 1 1.1 Research Background and Motivation 1 1.2 Research Objectives and Contribution 7 1.3 Research Structure 9 CHAPTER TWO LITERATURE REVIEW 11 2.1 Introduction to Literature Review Strategy 11 2.2 Overview of the Spot Foreign Exchange Market 11 2.3 Market Participants 12 2.3.1 Dealing Institutions vs. Non-Dealing Institutions 13 2.3.2 Speculative vs. Non-speculative Participants 13 2.3.3 Informed vs. Uninformed Participants 13 2.4 Market Structure and Trading Networks 14 2.4.1 Interbank Market 14 2.4.2 Non-interbank Market 15 2.4.3 Electronic Networks 15 2.5 Drivers of Price Change 16 2.5.1 Macroeconomic Theories / Models 17 2.5.2 Market Microstructure Theory 18 2.6 Intraday Exchange Rate Determination 19 2.6.1 Market-Maker Considerations 19 2.6.2 Price Discovery 19 2.6.3 Market-Maker Quoting Behavior 20 2.7 Trading Behavior 20 2.7.1 Noise Trading 20 2.7.2 Technical Trading 20 2.7.3 Speculation 21 2.7.4 Manipulation by Hedge Funds 21 2.7.5 Central Bank Intervention 21 2.7.6 Algorithmic Trading 22 2.8 Potential Causes of Weekend Price Gaps in the Non-interbank Spot Foreign Exchange Market 22 2.8.1 Spreads 22 2.8.2 Market Hours 23 2.8.3 Low Liquidity, Low Volume 27 2.9 Possible Causes of Brief and Rapid Price Extensions in the Direction of Weekend Price Gaps Immediately Following Market Open 27 2.9.1 Feedback Trading / Noise Trading 27 2.9.2 Technical Trading 28 2.9.3 Participant Mix 28 2.10 Potential Causes of Price Reversals and Partial or Complete Gap Closures within the Initial Market Opening Hours Following Weekend Price Gaps 29 2.10.1 Monday Morning Effects 29 2.10.2 Price Cascades 30 2.10.3 Temporary Price Impact of Small Traders 32 2.10.4 Reoccuring Patterns in the Spot Foreign Exchange Market 33 2.11 Price Gaps and Intraday Price Reversals in the Futures Markets 33 2.12 Realizing Abnormal Returns in the Spot Foreign Exchange Market with a Technical Trading Strategy 35 CHAPTER THREE RESEARCH DESIGN AND METHODOLOGY 37 3.1 Overview 37 3.2 Statement of Research Questions 38 3.2.1 Does Price Tend to Reverse to the Midpoint between Friday’s Closing Price, or Even Fully Back to Friday’s Closing Price, within the First Two or Twelve Hours of Market Opening when Sunday’s Opening Price is Higher or Lower than Friday’s Closing Price? 38 3.2.2 Does Opening Gap Size Positively Correlate with the Size of the Maximum Price Reversal Occurring within the First Two and/or First Twelve Hour Period of Market Opening? 40 3.2.3 Can Abnormal Returns be Achieved within the Initial Two or Twelve Hours of Market Opening when Sunday’s Opening Price is Higher or Lower than Friday’s Closing Price? 40 3.3 Selection of Currency Pairs and Sample Period 41 3.3.1 Selection of Currency Pairs 41 3.3.2 Sample Period 41 3.4 Collection of Historical Data 42 3.5 Compilation of Data for Analysis 43 3.6 Data Analysis 43 3.6.1 Classification of Weekend Gap Events 43 3.6.2 Determination and Recording of Satisfaction or Failure of the Complete Gap Closure Condition within the First Twelve Hours of Market Opening 43 3.6.3 Classification of Partial Gap Closures within the First Twelve Hours of Market Opening 44 3.6.4 Calculation of Gap Size 45 3.6.5 Calculation of Measure of Maximum Price Reversal 45 3.6.6 Coefficient of Correlation between Magnitude of Gap and Magnitude of Maximum Reversal 45 3.6.7 Pearson Correlation Test of Gap Size Versus Size of Maximum Reversal 45 3.7 Formulation of Trading Strategy Rules 46 3.8 Back Testing of Trading Strategy 46 3.9 Assessment of Results 46 3.9.1 Calculating Rates of Return 46 3.9.2 Adjustment for Transaction Costs 47 3.9.3 Initial Indication of Whether Trading Returns are Abnormal 48 3.9.4 Alternate Benchmark and Statistical Tests to Determine Whether Trading Returns are Abnormal 49 CHAPTER FOUR RESEARCH RESULTS 51 4.1 Preliminary Analysis of the EURUSD 2010 51 4.2 Hourly Price Reversal Performance During the First Twelve Hours of Market Opening for the EURUSD 2010 53 4.3 Preliminary Formulation of Trade Strategy Rules 60 4.4 Back Testing of the Preliminary Trade Strategy 60 4.5 EURUSD January 1, 2004 through December 31, 2010 Gap Events and Two Hour Reversals 65 4.6 USDJPY January 1, 2004 through December 31, 2010 Gap Events and Two Hour Reversals 68 4.7 EURUSD January 1, 2004 through December 31, 2010 Gap Events and Twelve Hour Reversals 71 4.8 USDJPY January 1, 2004 through December 31, 2010 Gap Events and Twelve Hour Reversals 74 4.9 Revision of Simple Trade Strategy Rules for 7-Year Back Testing. ............. 77 4.10 Trade Strategy Back Tested with EURUSD 2004-2010 Historical Data. ... 79 4.11 Statistical Significance of EURUSD 2004-2010 Simulated Trade Results Versus Alternate Benchmark 89 4.12 Trade Strategy Back Test with USDJPY 2004-2010 Historical Data 93 4.13 Statistical Significance of USDJPY 2004-2010 Simulated Trade Results Versus Alternate Benchmark 104 4.14 EURUSD and USDJPY Hourly Price Change First 12 Hours of Market Open Following Weekend Price Gap Events 2004 through 2010 109 4.14.1 EURUSD Hourly Price Change First 12 Hours of Market Open Following Weekend Price Gap Events 2004 through 2010 110 4.14.2 USDJPY Hourly Price Change First 12 Hours of Market Open Following Weekend Price Gap Events 2004 through 2010 113 CHAPTER FIVE CONCLUSION AND SUGGESTIONS 117 5.1 Research Conclusion and Discussion 117 5.2 Research Implication and Suggestion 119 5.3 Research Limitation and Future Research 121 REFERENCES 123 APPENDICES 126 Appendix 1: EURUSD January 1, 2004 through December 31, 2010 Gap Events and Reversal Figures for the First Two Hours of Market Open 126 Appendix 2: USDJPY January 1, 2004 through December 31, 2010 Gap Events and Reversal Figures for the First Two Hours of Market Open 132 Appendix 3: EURUSD January 1, 2004 through December 31, 2010 Gap Events and Reversal Measures for the First Twelve Hours of Market Open 138 Appendix 4: USDJPY 2004 through 2010 Gap Events and Reversal Measures for the First 12 Hours of Market Open Following Weekend Gap Events 144 Appendix 5: EURUSD Hourly Price Reversals and Extensions during First 12 Hours of Market Open Following Weekend Gap Events 150 Appendix 6: USDJPY Hourly Maximum Price Reversals and Extensions First 12 Hours of Market Open Following Weekend Gap Events 216

    Advanced Currency Markets SA. (2011). New to forex. 2011, from http://www.ac-markets.com/forex-education/forex.aspx
    Bask, M., & Fidrmuc, J. (2009). Fundamentals and technical trading: Behavior of exchange rates in the CEECs. Open Economies Review, 20(5), 589-605.
    Bickford, J. L. (2008). Forex shockwave analysis. New York: McGraw-Hill.
    Bjønnes, G. H., & Rime, D. (2005). Dealer behavior and trading systems in foreign exchange markets. Journal of Financial Economics, 75(3), 571-605.
    Blake, D., Beenstock, M., & Brasse, V. (1986). The performance of UK exchange rate forecasters. Economic Journal, 96(384), 986-999.
    Central Intelligence Agency. (2011). The world factbook. 2011, from https://www.cia.gov/library/publications/the-world-factbook/fields/2195.html
    Charlebois, M., & Sapp, S. (2007). Temporal patterns in foreign exchange returns and options. Journal of Money, Credit and Banking, 39(2/3), 443-470.
    Cross, S. Y. (1998). All about... the foreign exchange market in the United States. New York: Federal Reserve Bank of New York.
    Demos, A. A., & Goodhart, C. A. E. (1996). The interaction between the frequency of market quotations, spread and volatility in the foreign exchange market. Applied Economics, 28(3), 377-386.
    Derviz, A. (2003). Forex microstructure, invisible price determinants, and the central bank’s understanding of exchange rate formation. Retrieved. from http://www.cnb.cz/miranda2/export/sites/www.cnb.cz/en/research/research_publications/cnb_wp/download/wp6-2003.pdf.
    Financial Web. (2011). The forex market hours. 2011, from http://www.finweb.com/investing/the-forex-market-hours.html
    Forexmarkethours.com. (2010). GMT and EST hours for trading forex. 2010, from http://www.forexmarkethours.com/GMT_hours/02/
    Fung, A. K.-W., Mok, D. M. Y., & Lam, K. (2000). Intraday price reversals for index futures in the US and Hong Kong. Journal of Banking & Finance, 24(7), 1179-1201.
    Gain Capital Group LLC. (2011). Introduction to the forex market. 2011, from http://www.forex.com/intro-forex-market.html
    Galati, G., & Heath, A. (2007). What drives the growth in fx activity? Interpreting the 2007 triennial survey. BIS Quarterly Review, 9.
    Galati, G., & Melvin, M. (2004). Why has fx trading surged? Explaining the 2004 triennial survey. BIS Quarterly Review, 8.
    Gehrig, T., & Menkhoff, L. (2004). The use of flow analysis in foreign exchange: exploratory evidence. Journal of International Money and Finance, 23(4), 573-594.
    Global Futures & Forex Ltd.. (2010). Let's get to know forex--an introduction to trading currencies, a GFT educational guide. 2010, from http://www.gft.com.au/assets/documents/Free-Guides/AU_Lets-Get-to-Know-Forex.pdf
    124
    GO Markets Pty Ltd. (2008). Basic forex theories. 2011, from http://www.gomarketsaus.com/free-forex-education/basic-forex-theories/
    Grant, J. L., Wolf, A., & Yu, S. (2005). Intraday price reversals in the US stock index futures market: A 15-year study. Journal of Banking and Finance, 29(5), 1311-1327.
    Hartmann, P. (1998). Do Reuters spreads reflect currencies' differences in global trading activity? Journal of International Money and Finance, 17(5), 757-784.
    Huang, R. D., & Masulis, R. W. (1999). Fx spreads and dealer competition across the 24-hour trading day. Review of Financial Studies, 12(1).
    Investopedia ULC. (2010). Forex market hours. 2011, from http://www.investopedia.com/terms/forex/f/forex-market-trading-hours.asp
    Ito, T., & Hashimoto, Y. (2006). Intraday seasonality in activities of the foreign exchange markets: Evidence from the electronic broking system. Journal of the Japanese and International Economies, 20(4), 637-664.
    Jeanne, O., & Rose, A. K. (2002). Noise trading and exchange rate regimes. The Quarterly Journal of Economics, 117(2), 537-569.
    King, M. R., & Rime, D. (2010). The $4 Trillion Question: What Explains FX Growth Since the 2007 Survey? BIS Quarterly Review(December).
    Kleist, K. v., Mallo, C., Grouchko, S., & Mesny, P. (2010). Foreign exchange and derivatives market activity in April 2010. Triennial Central Bank Survey, 27.
    Kleist, K. v., Mallo, C., Mesny, P., & Grouchko, S. (2010). Report on global foreign exchange market activity in 2010. Triennial Central Bank Survey(December), 95.
    Levich, R. M. (1989). Is the foreign exchange market efficient? The Oxford Review of Economic Policy Limited, 5(3), 21.
    Liu, H.-C. (2009). Timing of price clustering and trader behavior in the foreign exchange market: Evidence from Taiwan. Journal of Economics and Finance, 1-13.
    Lyons, R. K. (2002). The future of the foreign exchange market. Brookings-Wharton Papers on Financial Services, 2002.
    Masry, S., Aloud, M., Tsang, E., Dupuis, A., & Olsen, R. (2010, 8-9 September). A novel approach for studying the high-frequency FOREX market. Paper presented at the Computer Science and Electronic Engineering Conference (CEEC), 2010 2nd.
    Menkhoff, L., & Schmeling, M. (2010). Trader see, trader do: How do (small) fx traders react to large counterparties' trades? Journal of International Money and Finance, 29(7), 1283-1302.
    Neely, C. J., Weller, P. A., & Ulrich, J. M. (2009). The adaptive markets hypothesis: Evidence from the foreign exchange market. Journal of Financial and Quantitative Analysis, 44(02), 467-488.
    OANDA Corporation. (2010a). Fxtrade forex trading account features. 2011, from http://fxtrade.oanda.com/trade-forex/fxtrade/
    OANDA Corporation. (2010b). Recent Oanda spreads. 2010, from http://fxtrade.oanda.com/why/spreads/recent
    Okunev, J., & White, D. (2003). Do momentum-based strategies still work in foreign currency markets? The Journal of Financial and Quantitative Analysis, 38(2), 425-447.
    Osler, C. (2005). Stop-loss orders and price cascades in currency markets. Journal of International Money and Finance, 24(2), 219-241.
    125
    Osler, C. (2011). Market microstructure, foreign exchange. In R. A. Meyers (Ed.), Complex systems in finance and econometrics (pp. 580-614). New York: Springer.
    Park, C.-H., & Irwin, S. H. (2007). What do we know about the profitability of technical analysis? Journal of Economic Surveys, 21(4), 786-826.
    Pasquariello, P. (2010). Central bank intervention and the intraday process of price formation in the currency markets. Journal of International Money and Finance, 29(6), 1045-1061.
    Peiers, B. (1997). Informed traders, intervention, and price leadership: A deeper view of the microstructure of the foreign exchange market. The Journal of Finance, Vol. 52(No. 4), 26.
    Schmidt, A. B. (2010). Microstructure and execution strategies in the global spot fx market. In M. Takayasu, T. Watanabe & H. Takayasu (Eds.), Econophysics approaches to large-scale business data and financial crisis (pp. 49-63). Tokyo: Springer.
    Serban, A. F. (2010). Combining mean reversion and momentum trading strategies in foreign exchange markets. Journal of Banking and Finance, 34(11), 2720-2727.
    Shmilovici, A., Kahiri, Y., Ben-Gal, I., & Hauser, S. (2009). Measuring the efficiency of the intraday forex market with a universal data compression algorithm. Computational Economics, 33(2), 131-154.
    Sweeney, R. J. (1986). Beating the foreign exchange market. The Journal of Finance, 41(1), 163-182.
    Wikipedia Foundation Inc. (2010). Foreign exchange market. 2010, from http://en.wikipedia.org/wiki/Foreign_exchange_market
    Yin-Wong, C., Chinn, M. D., & Marsh, I. W. (2004). How do UK-based foreign exchange dealers think their market operates? International Journal of Finance and Economics, 9(4), 289-306.

    下載圖示 校內:立即公開
    校外:立即公開
    QR CODE