Timing Exchange Rates Using Order Flow: The Case of the Loonie

• DOI: 10.2139/ssrn.1566895
• Publication Date: 2012-01-04T23:32:34Z
• Authors: Michael R. King; Lucio Sarno; Elvira Sojli
• Keywords: RSM F&A; 0502 economics and business; 05 social sciences

This paper examines the relation between Canadian dollar / US (CAD) exchange rate and foreign order flow employing a novel data set on CAD over period 1994-2005. We investigate empirically predictive information content determinants of flow. The results suggest that has strong out-of-sample power for returns, yielding significant market timing ability tangible economic gains in stylized dynamic asset allocation context. In terms its determinants, appears to reflect not only menu macroeconomic variables typically suggested literature but is also closely related commodity price fluctuations, as expected from 'commodity currency.'