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Tick test accuracy in foreign exchange ECN markets

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  • Ben Omrane, Walid
  • Welch, Robert

Abstract

Recent computer quoting activity has increased the allure of the tick test because the quote rule and its variants require matching asynchronous trade and quote records. We find tick test accuracy of 1.2 million forex trades is about 67% which falls to 63% for zerotick trades (half the sample). Accuracy declines as quoted spreads decrease and as time to the previous trade increases. We observe extreme asymmetry for midquote changes, where buyer accuracy is 96% (27%) for up (down) changes, respectively. The quote rule is about 77% accurate. The group tick test is superior to the bulk volume classification method.

Suggested Citation

  • Ben Omrane, Walid & Welch, Robert, 2016. "Tick test accuracy in foreign exchange ECN markets," Research in International Business and Finance, Elsevier, vol. 37(C), pages 135-152.
  • Handle: RePEc:eee:riibaf:v:37:y:2016:i:c:p:135-152
    DOI: 10.1016/j.ribaf.2015.10.001
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Tick rule; Signed trades; Foreign exchange ECN market; High-frequency data;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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