Intraday price-reversal patterns in the currency futures market: The impact of the introduction of GLOBEX and the euro

Joel Rentzler, Kishore Tandon, Susana Yu

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

This article assesses the intraday price-reversal patterns of seven major currency futures contracts traded on the Chicago Mercantile Exchange over 1988-2003 after 1-day returns and opening gaps. Significant intraday price-reversal patterns are observed in five of the seven currency futures contracts, following large price changes. Additional tests are conducted in three subperiods (1988-1992, 1993-1998, and 1999-2003) to examine the impact of the introduction of electronic trading on GLOBEX in 1992 (to assess how a near 24-hour trading session might impact the next-day opening and closing futures prices) and the introduction of the euro in 1999 (to assess its impact on price predictability in other futures markets). It is found that the introduction of the GLOBEX in 1992 significantly reduced pricing errors in currency futures in the second subperiod, making the currency futures markets fairly efficient. However, the introduction of the new currency, the euro, and the disappearance of several European currencies in 1999, resulted in significant price patterns (mostly reversals and some persistence) in most of the currency futures, indicating inefficiencies in the third subperiod.

Original languageEnglish
Pages (from-to)1089-1130
Number of pages42
JournalJournal of Futures Markets
Volume26
Issue number11
DOIs
StatePublished - 1 Nov 2006

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Currency
Price reversal
Futures markets
Currency futures
Futures contracts
Price changes
Electronic trading
Persistence
Pricing errors
Reversal
Futures prices
Predictability
Inefficiency

Cite this

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Intraday price-reversal patterns in the currency futures market : The impact of the introduction of GLOBEX and the euro. / Rentzler, Joel; Tandon, Kishore; Yu, Susana.

In: Journal of Futures Markets, Vol. 26, No. 11, 01.11.2006, p. 1089-1130.

Research output: Contribution to journalArticle

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