CHF/JPY "bipolar disorder" history

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Written by Forex Automaton   
Wednesday, 05 November 2008 12:47
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CHF/JPY "bipolar disorder" history
Time history of the effect
CHF and JPY LIBOR rates differential
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This is a follow-up note to CHF/JPY: predictability overview. CHF/JPY, like AUD/JPY, AUD/USD, and some others, has what I call hour-scale "bipolar disorder" predictability feature: a tendency to form quickly alternating rises and falls on next-hour time scale, more pronounced than in a fully unpredictable time series of same volatility. A similar feature (on a day, not hour scale) is seen in the s/n-o/n JPY LIBOR data. In principle, features like that offer profit potential to a trader who is able to enter the trade on the "action" and take profit on the predictable "reaction", knowing the time scale of the pattern and thus being able to manage his/her risk exposure. Any statistical test of market inefficiency requires a finite time of observation, and the original article covered the time interval from August 20, 2002 to February 1st, 2008, with no attention paid to the time evolution of the picture of predictable patterns in this currency pair. Meanwhile, same spike in a correlation function can be caused by a large singular event or a series of similar events of lower magnitude. This article extends the historical coverage into the first three quarters of 2008, and focuses on the time evolution of the pattern, characterized by the 1-hour time lag autocorrelation value. Naturally, we want to know how robust this feature has been, whether it is alive at present, and what are its future prospects. We follow the same outline as with AUD/JPY and AUD/USD: present the autocorrelation view of the feature, continue with the history of the autocorrelation value corresponding to 1-hour time lag, and compare that with the volatility and LIBOR history.

CHF/JPY historical chart 2002-2008

Fig.1: Bar chart of CHF/JPY history, 2002-2008. The time axis is labeled in MM-YY format.

CHF/JPY autocorrelation of logarithmic returns in the vicinity of zero time lag, hour scale, separating time zones

Fig.2:Autocorrelations of logarithmic returns in CHF/JPY, over a range of time lags, computed for the time period October 1, 2002-October 1, 2008. Time scale of the analysis is hour. Trading session hours are shown in New York time.

For the sake of completeness, Fig.1 presents the history of CHF/JPY for the period under study. In Fig.2, the large negative autocorrelation signal in the bin next to zero, the main subject of this note, indicates rapid (next hour) changes in the mood of the market, a price action followed by the next hour correction. Curiously, the feature is present only in Australasian trading -- that was not the case with AUD/USD.

Last Updated ( Monday, 14 September 2009 16:51 )