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The central bank in market efficiency: The case of Taiwan

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  • Chen, Pei-wen
  • Huang, Han-ching
  • Su, Yong-chern

Abstract

This paper investigates the empirical relation between order imbalance and intraday NTD/USD exchange rate dynamics. Using one-year high frequency data, we demonstrate that interbank order imbalances have substantial explanatory power for concurrent exchange rate returns both on the daily and intraday bases. More importantly, we find that lagged-one order imbalances have a predictive negative effect on current returns. Further, we trace the predictability of returns using order imbalances over various intervals to investigate the intraday market efficiency. We show that the weak-form efficiency appears to prevail over intervals of 15 to 60min in the NTD/USD exchange rate market.

Suggested Citation

  • Chen, Pei-wen & Huang, Han-ching & Su, Yong-chern, 2014. "The central bank in market efficiency: The case of Taiwan," Pacific-Basin Finance Journal, Elsevier, vol. 29(C), pages 239-260.
  • Handle: RePEc:eee:pacfin:v:29:y:2014:i:c:p:239-260
    DOI: 10.1016/j.pacfin.2014.04.002
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    Cited by:

    1. de Resende, Charlene C. & Pereira, Adriano C.M. & Cardoso, Rodrigo T.N. & de Magalhães, A.R. Bosco, 2017. "Investigating market efficiency through a forecasting model based on differential equations," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 474(C), pages 199-212.

    More about this item

    Keywords

    Order imbalance; Intraday; NTD/USD exchange rate; Predictability;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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