Title: Noise trades and foreign exchange volatility

Authors: Walid Ben Omrane

Addresses: Department of Finance Operations and Information Systems, Goodman School of Business, Brock University, St. Catharines, Ontario, 500 Glenridge Ave., L2S 3A1, Canada

Abstract: This paper examines noise trade effects on foreign exchange volatility. Noise trades are mainly triggered by signals from technical analysis. These signals occur at the completion of a technical chart pattern. First, we develop and implement multiple pattern recognition algorithms to identify technical chart patterns. Second, we estimate technical signal effects on currency volatility. We show that technical signals attract noise traders with important order flow that boosts volatility.

Keywords: foreign exchange volatility; technical signals; high frequency data; foreign exchange markets; noise trade effects; pattern recognition; technical chart patterns; technical signal effects; currency volatility; order flow.

DOI: 10.1504/IJBD.2013.056932

International Journal of Bonds and Derivatives, 2013 Vol.1 No.1, pp.30 - 53

Received: 08 Feb 2013
Accepted: 26 Apr 2013

Published online: 25 Sep 2013 *

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