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Quantifying the randomness of the forex market

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  • Delgado-Bonal, Alfonso
  • López, Álvaro García

Abstract

Currency markets are international networks of participants opened all day during weekdays without a supervisory entity. The precise value of an exchange pair is determined by the decisions of the central banks and the behavior of the speculators, whose actions can be determined on the spot or be related to previous decisions. All those decisions affect the complexity and predictability of the system, which are quantitatively analyzed in this paper. For this purpose, we compare the randomness of the most traded currencies in the forex market using the Pincus Index. We extend the development of this methodology to include multidimensionality in the embedding dimension, to capture the influence of the past in current decisions and to analyze different frequencies within the data with a multiscale approach. We show that, in general, the forex market is more predictable using one hour ticks than using daily data for the six major pairs, and present evidence suggesting that the variance is easier to predict for longer time frames.

Suggested Citation

  • Delgado-Bonal, Alfonso & López, Álvaro García, 2021. "Quantifying the randomness of the forex market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 569(C).
    • Handle: RePEc:eee:phsmap:v:569:y:2021:i:c:s037843712100042x
    DOI: 10.1016/j.physa.2021.125770
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    References listed on IDEAS

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    Cited by:

    1. Asit Kumar Das & Debahuti Mishra & Kaberi Das & Arup Kumar Mohanty & Mazin Abed Mohammed & Alaa S. Al-Waisy & Seifedine Kadry & Jungeun Kim, 2022. "A Deep Network-Based Trade and Trend Analysis System to Observe Entry and Exit Points in the Forex Market," Mathematics, MDPI, vol. 10(19), pages 1-23, October.

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