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Dynamics of exchange rate determination and currency order flow in the Thailand foreign exchange market

Dynamics of exchange rate determination and currency order flow in the Thailand foreign exchange... PurposeThe purpose of this paper is to present the essential role that currency order flow plays in the foreign exchange markets of emerging economies in the determination of their currencies in the short and the long-run against major currencies of the world, which cannot be over emphasized, most especially against the US dollar. Insomuch that, if some of these emerging economies can be successfully transmitted into full development, it would be a good model for other emerging economies and the world at large.Design/methodology/approachA hybrid model (portfolio shift model) proposed by Evans and Lyons (2002a, 2002b) is extended to analyze a data set of every quarter of an hour currency order flow and currency exchange rate fluctuations of Thai Baht (THB) against the US$ for the period of six years (January 2010 to December 2015). To reflect the pressure of currency excess demand, the authors construct a measure of currency order flow in the Thailand currency exchange market. Vector autoregression model is applied to estimate the effectual role of currency order flow in the determination of exchange rate for the THB against the US$.FindingsCurrency order flow indeed accounted for a sizeable and significant portion of the fluctuations in the THB and the US$ exchange rate.Originality/valueInsomuch that, the results show that currency order flow has significant explanatory power in the emerging markets economy to capture the THB exchange rate variability, and it then brings to the attention of the Thailand Monetary Authority the importance that should be attached to the market microstructure. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Chinese Economic and Foreign Trade Studies Emerald Publishing

Dynamics of exchange rate determination and currency order flow in the Thailand foreign exchange market

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1754-4408
DOI
10.1108/JCEFTS-11-2016-0031
Publisher site
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Abstract

PurposeThe purpose of this paper is to present the essential role that currency order flow plays in the foreign exchange markets of emerging economies in the determination of their currencies in the short and the long-run against major currencies of the world, which cannot be over emphasized, most especially against the US dollar. Insomuch that, if some of these emerging economies can be successfully transmitted into full development, it would be a good model for other emerging economies and the world at large.Design/methodology/approachA hybrid model (portfolio shift model) proposed by Evans and Lyons (2002a, 2002b) is extended to analyze a data set of every quarter of an hour currency order flow and currency exchange rate fluctuations of Thai Baht (THB) against the US$ for the period of six years (January 2010 to December 2015). To reflect the pressure of currency excess demand, the authors construct a measure of currency order flow in the Thailand currency exchange market. Vector autoregression model is applied to estimate the effectual role of currency order flow in the determination of exchange rate for the THB against the US$.FindingsCurrency order flow indeed accounted for a sizeable and significant portion of the fluctuations in the THB and the US$ exchange rate.Originality/valueInsomuch that, the results show that currency order flow has significant explanatory power in the emerging markets economy to capture the THB exchange rate variability, and it then brings to the attention of the Thailand Monetary Authority the importance that should be attached to the market microstructure.

Journal

Journal of Chinese Economic and Foreign Trade Studies – Emerald Publishing

Published: Jun 5, 2017

References

  • Micro effects of macro announcements: real-time price discovery in foreign exchange
  • Order flow and exchange rate dynamics in electronic brokerage system data
  • Dealer behavior and trading systems in foreign exchange markets