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Real prices from spot foreign exchange market

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  • Petroni, Filippo
  • Serva, Maurizio

Abstract

In this work we discuss the problem of price definition when using high frequency foreign exchange data. If one uses the spot mid price a strong autocorrelation of returns, at one lag, is found which is only due to microstructure effect and does not capture the real behavior of price dynamics. This autocorrelation increases the intraday volatility estimated from this type of data. To solve this problem we introduce an algorithm which is able, by using the no-arbitrage principle, of eliminating every microstructure effects.

Suggested Citation

  • Petroni, Filippo & Serva, Maurizio, 2004. "Real prices from spot foreign exchange market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 344(1), pages 194-197.
    • Handle: RePEc:eee:phsmap:v:344:y:2004:i:1:p:194-197
    DOI: 10.1016/j.physa.2004.06.115
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    References listed on IDEAS

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    1. Gençay, Ramazan & Dacorogna, Michel & Muller, Ulrich A. & Pictet, Olivier & Olsen, Richard, 2001. "An Introduction to High-Frequency Finance," Elsevier Monographs, Elsevier, edition 1, number 9780122796715.
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    Cited by:

    1. Sato, Aki-Hiro, 2007. "Frequency analysis of tick quotes on the foreign exchange market and agent-based modeling: A spectral distance approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 382(1), pages 258-270.

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