publication . Article . 2007

a market microstructure analysis of the canadian dollar depreciation episodes in the 1990s

Nikola Gradojevic;
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  • Published: 14 Nov 2007 Journal: Applied Financial Economics, volume 17, pages 1,377-1,387 (issn: 0960-3107, eissn: 1466-4305, Copyright policy)
  • Publisher: Informa UK Limited
Abstract
This article analyses two sudden depreciations of the Canadian dollar in the 1990s: July/August 1998 and November/December 1994. It is found that a nonparametric exchange rate model based on a combination of fundamental and microstructure (order flow) variables can be used not only to explain, but to also predict such excessive currency movements. During the depreciation periods, the forecast accuracy of the model is significantly superior to that of the linear model. The results provide an illustrative example that order flow variables have a substantial explanatory power for a very short-run exchange rate prediction.
Subjects
free text keywords: Economics and Econometrics, Finance, Linear model, Nonparametric statistics, Exchange rate, Economics, Currency, Liberian dollar, Explanatory power, Market microstructure, Depreciation, Financial economics
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