IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Market Sentiment and Exchange Rate Directional Forecasting

Listed author(s):
  • Vasilios Plakandaras

    (Department of Economics, Democritus University of Thrace, Greece)

  • Theophilos Papadimitriou

    (Department of Economics, Democritus University of Thrace, Greece)

  • Periklis Gogas

    ()

    (Department of Economics, Democritus University of Thrace, Greece; The Rimini Centre for Economic Analysis, Italy)

  • Konstantinos Diamantaras

    (Department of Information Technology, TEI of Thessaloniki, Greece)

The microstructural approach to the exchange rate market claims that order flows on a currency can accurately reflect the short-run dynamics its exchange rate. In this paper, instead of focusing on order flows analysis we employ an alternative microstructural approach: we focus on investors' sentiment on a given exchange rate as a possible predictor of its future evolution. As a proxy of investors' sentiment we use StockTwits posts, a message board dedicated to finance. Within StockTwits investors are asked to explicitly state their market expectations. We collect daily data on the nominal exchange rate of four currencies against the U.S. dollar and the extracted market sentiment for the year 2013. Employing econometric and machine learning methodologies we develop models that forecast in out-of-sample exercise the future direction of the four exchange rates. Our empirical findings reject the Efficient Market Hypothesis even in its weak form for all four exchange rates. Overall, we find evidence that investors' sentiment as expressed in public message boards can be an additional source of information regarding the future directional movement of the exchange rates to the ones proposed by economic theory.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.rcea.org/RePEc/pdf/wp37_14.pdf
Download Restriction: no

Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 37_14.

as
in new window

Length:
Date of creation: Nov 2014
Handle: RePEc:rim:rimwps:37_14
Contact details of provider: Postal:
Via Patara, 3, 47921 Rimini (RN)

Phone: +390541434142
Fax: +39054155431
Web page: http://rcea.org
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. King, Michael & Sarno, Lucio & Sojli, Elvira, 2010. "Timing exchange rates using order flow: The case of the Loonie," Journal of Banking & Finance, Elsevier, vol. 34(12), pages 2917-2928, December.
  2. Martin D. D. Evans & Richard K. Lyons, 2002. "Order Flow and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 110(1), pages 170-180, February.
  3. Vasilios Plakandaras & Theophilos Papadimitriou & Periklis Gogas, 2015. "Forecasting Daily and Monthly Exchange Rates with Machine Learning Techniques," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 34(7), pages 560-573, November.
  4. Rime, Dagfinn & Sarno, Lucio & Sojli, Elvira, 2010. "Exchange rate forecasting, order flow and macroeconomic information," Journal of International Economics, Elsevier, vol. 80(1), pages 72-88, January.
  5. Rechenthin, Michael & Street, W. Nick & Srinivasan, Padmini, 2013. "Stock chatter: Using stock sentiment to predict price direction," Algorithmic Finance, IOS Press, vol. 2(3-4), pages 169-196.
  6. Gehrig, Thomas & Menkhoff, Lukas, 2004. "The use of flow analysis in foreign exchange: exploratory evidence," Journal of International Money and Finance, Elsevier, vol. 23(4), pages 573-594, June.
  7. King, Michael R. & Osler, Carol L. & Rime, Dagfinn, 2013. "The market microstructure approach to foreign exchange: Looking back and looking forward," Journal of International Money and Finance, Elsevier, vol. 38(C), pages 95-119.
  8. Crowder, William J, 1994. "Foreign exchange market efficiency and common stochastic trends," Journal of International Money and Finance, Elsevier, vol. 13(5), pages 551-564, October.
  9. Cheung, Yin-Wong & Chinn, Menzie David, 2001. "Currency traders and exchange rate dynamics: a survey of the US market," Journal of International Money and Finance, Elsevier, vol. 20(4), pages 439-471, August.
  10. Dietmar Janetzko, 2014. "Using Twitter to Model the EUR/USD Exchange Rate," Papers 1402.1624, arXiv.org.
  11. Jarque, Carlos M. & Bera, Anil K., 1980. "Efficient tests for normality, homoscedasticity and serial independence of regression residuals," Economics Letters, Elsevier, vol. 6(3), pages 255-259.
  12. Tabak, Benjamin M. & Lima, Eduardo J.A., 2009. "Market efficiency of Brazilian exchange rate: Evidence from variance ratio statistics and technical trading rules," European Journal of Operational Research, Elsevier, vol. 194(3), pages 814-820, May.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:rim:rimwps:37_14. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marco Savioli)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.