Pricing errors and the geography of trade in the foreign exchange market

Piccotti, Louis R.

doi:10.1016/j.finmar.2015.08.003

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Cited by 10 publications

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References 59 publications

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“…The nominal exchange rate data that we use is tick‐by‐tick customer‐dealer quote data obtained from Gain Capital, which is a large retail aggregator in the foreign exchange market (see Piccotti, 2016 and 2018, for descriptions of quote volume, illiquidity, jumps, and pricing error variances among other characteristics for this data set). The sample period is January 1, 2002, to December 31, 2015.…”

Section: Datamentioning

confidence: 99%

Differential risk premiums and the UIP puzzle

Biswas

Piccotti

Schreiber

2020

Financial Management

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We respecify the uncovered interest rate parity (UIP) conditions by inverting the market price of the risk (Sharpe ratio) formula. Our empirical model provides new insight indicating that violations to the UIP stem from the existence of a risk premium in the exchange rates and from observed market return differentials being a noisy statistic of the markets’ expected return differentials in our respecified model. Using an integrated macro‐micro structure framework for expected market return differentials improves our model fit and the validity of UIP.

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Section: Datamentioning

confidence: 99%