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Price dynamics in foreign currency futures markets |
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| Institution: | 1. Department of Financial Studies, University of Delhi, Delhi, India;2. Groupe ESC Pau – France, Rue Saint-John Perse, BP 7512–64075, France;1. St. Petersburg State University, 7/9 Universitetskaya nab., St. Petersburg 199034, Russia;2. OXCARRE, Department of Economics, University of Oxford, Oxford OX1 3 UQ, United Kingdom;1. Department of Economics, University of Arizona, McClelland Hall 401, 1130 E Helen St, Tucson, AZ 85721-0108, USA;2. Department of Agricultural & Resource Economics, University of California, Berkeley, 207 Giannini Hall #3310, Berkeley, CA 94720-3310, USA;3. Department of Economics, University of Oslo, Postbox 1095, Blindern, 0317 Oslo, Norway |
| Abstract: | Nested tests of Samuelson's submartingale and martingale models of price behavior in an efficient futures market find significant autocorrelation at low lags in daily changes of log prices for four of ten currency futures contracts satisfying the assumptions of the statistical tests. Negative serial correlation following large price changes is also found. The analysis controls for bias due to institutional limits on daily price movements. Simulated trading based on out-of-sample forecasts suggests the dependencies probably could be exploited by traders who are members of the futures exchange to earn net profits greatly exceeding buy and hold. |
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