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ISRN Economics
Volume 2013 (2013), Article ID 724259, 12 pages
Research Article

Exchange Rate Determination and Forecasting: Can the Microstructure Approach Rescue Us from the Exchange Rate Disparity?

1GREQAM, School of Economics, Aix-Marseille University, Marseille 13236, France
2School of Public Administration, Sichuan University, Chengdu 610000, China
3School of Economics, Quaid-i-Azam University, Islamabad 45320, Pakistan

Received 21 August 2013; Accepted 1 December 2013

Academic Editors: M. E. Kandil and A. Rodriguez-Alvarez

Copyright © 2013 Guangfeng Zhang et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.


Using two measures of private information and high-frequency transaction data from the leading interdealer electronic broking system Reuters D2000-2, we examine the association between exchange rate return and contemporaneous order flow and the predictability power of lagged order flow on the future exchange rate return. Our empirical analysis demonstrates that at high frequency (5, 10, 15, 20, 25, and 30 min) there exists strong positive association between exchange rate returns and contemporaneous order flow. However, the results indicate weak predictability of order flow on the future exchange rate return.