Nikola Gradojević FULL TEXT ARTICLE (PDF)
Recent scholarly work on the causal relationship between exchange rate movements and currency order flows has provided mixed results. This paper proposes a wavelet approach for determining multiscale causality between the Canada/U.S. dollar returns and aggregate market order flow. Evidence of bi-directional causality that contradicts the microstructure literature is found for almost all time scales. Multiresolution analysis identifies significant structural breaks in the data that are potentially driving such findings.
ARTICLE INFOKey words: Wavelets; Causality; Foreign Exchange Markets; Market Microstructure Article history: Received (09.09.2010); Revised (27.09.2010); Accepted (25.10.2010) Number of downloads (since May 2017):