https://doi.org/10.1140/epjb/e2003-00249-5
Spot foreign exchange market and time series
Dipartimento di Matematica and INFM Università
dell'Aquila, 67010 L'Aquila, Italy
Corresponding author: a filippo_petroni@virgilio.it
Received:
4
March
2003
Revised:
12
June
2003
Published online:
9
September
2003
We investigate high frequency price dynamics in foreign exchange market using data from Reuters information system (the dataset has been provided to us by Olsen and Associates). In our analysis we show that a naïve approach to the definition of price (for example using the spot mid price) may lead to wrong conclusions on price behavior as for example the presence of short term correlations for returns. For this purpose we introduce an algorithm which only uses the non arbitrage principle to estimate real prices from the spot ones. The new definition leads to returns which are not affected by spurious correlations. Furthermore, any apparent information (defined by using Shannon entropy) contained in the data disappears.
PACS: 89.65.Gh – Economics; econophysics, financial markets, business and management / 65.40.Gr – Entropy and other thermodynamical quantities
© EDP Sciences, Società Italiana di Fisica, Springer-Verlag, 2003