Order Flow and Exchange Rate Dynamics

@inproceedings{Evans1999OrderFA,
  title={Order Flow and Exchange Rate Dynamics},
  author={Martin D. D. Evans and Richard G. Lyons},
  year={1999}
}
Macroeconomic models of nominal exchange rates perform poorly. In sample, R2 statistics as high as 10 percent are rare. Out of sample, these models are typically out-forecast by a naïve random walk. This paper presents a model of a new kind. Instead of relying exclusively on macroeconomic determinants, the model includes a determinant from the field of microstructure—order flow. Order flow is the proximate determinant of price in all microstructure models. This is a radically different approach… CONTINUE READING
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