This article analyses two sudden depreciations of the Canadian dollar in the 1990s: July/August 1998 and November/December 1994. It is found that a nonparametric exchange rate model based on a combination of fundamental and microstructure (order flow) variables can be used not only to explain,...

We study the risk of informed trading in an electronic foreign exchange market and test whether informed trading is driven by marketwide private information. Our framework is based on a structural microstructure trade model that measures the market makers' beliefs directly. Evidence of high...

This paper tests the theoretical assumption of the foreign exchange market microstructure that dealers and non-dealer customers interact over discrete trading rounds. An exhaustive frequency-domain analysis reveals that the interaction is limited and mainly due to the instability of financial...

This paper employs a non-parametric method to forecast high-frequency Canadian|US dollar exchange rate. The introduction of a microstructure variable, order flow, substantially improves the predictive power of both linear and non-linear models. The non-linear models outperform random walk and...

We develop a dynamic framework to identify aggregate market fears ahead of a major market crash through the skewness premium of European options. Our methodology is based on measuring the distribution of a skewness premium through a q-Gaussian density and a maximum entropy principle. Our...

This paper introduces an entropy approach to measuring market expectations with respect to overnight interest rates in an inter-bank money market. The findings for the Turkish 2000-2001 borrowing crisis suggest that a dynamic, non-extensive entropy framework provides a valuable insight into the...