Microstructure order flow: statistical and economic evaluation of nonlinear forecasts

Cerrato, M., Kim, H. and MacDonald, R. (2015) Microstructure order flow: statistical and economic evaluation of nonlinear forecasts. Journal of International Financial Markets, Institutions and Money, 39, pp. 40-52. (doi:10.1016/j.intfin.2015.05.010)

Full text not currently available from Enlighten.

Abstract

In this paper we propose a novel extension of the standard market microstructure order flow model by incorporating non-linearities into the order flow–exchange rate relationship. This important issue has not been accounted for in the existing empirical literature. We investigate this issue using a new data set and focusing on out-of-sample forecasts. Forecasting power is measured using standard statistical tests and, additionally, using an alternative approach based on measuring the economic value of forecasts after building a portfolio of assets. While there is little statistical value in conditioning on our proposed models, its economic value is significantly high.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Cerrato, Professor Mario and MacDonald, Professor Ronald
Authors: Cerrato, M., Kim, H., and MacDonald, R.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Journal of International Financial Markets, Institutions and Money
Publisher:Elsevier
ISSN:1042-4431
ISSN (Online):1873-0612

University Staff: Request a correction | Enlighten Editors: Update this record