Abstract
The aim of the present research is to explore and test the empirical distribution of high frequency exchange rate returns from the Brazilian market against different market microstructure hypothesis and bivariate, multivariate and continuos time processes models. The main hypothesis we want to investigate is whether trades convey information, a hypothesis that is only testable now with high frequency data. We also want to investigate the relationship between trade-related variables and volatility. We use a variety of parametric models applied to both regular and irregularly spaced data sets. Our objective is to assess the empirical characteristics of a high frequency data set of foreign exchange rates from an emerging capital market, specifically based on limit order systems. The research has implications for risk management and portfolio allocation.
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