A hybrid approach to exchange rate dynamics: How do macro variables and order flow affect the Norwegian Krone?
Master thesis
View/ Open
Date
2021Metadata
Show full item recordCollections
- Master of Science [1613]
Abstract
This paper investigates the relationship between the EURNOK
spot exchange rate, macroeconomic factors, and order flow. We
consider an error correction model framework using almost 16 years
of data. At a weekly frequency, we establish a link between the EURNOK
depreciation rate and changes in the 3–month interest rate
di↵erential between Norway and the Euro area, the Brent Crude
Oil price, and volatility in the financial market. Our findings confirm
that di↵erent end–user order flows are empirically important
drivers of movements in the exchange rate and convey additional
information. The results are stable across subsamples, and in an
out–of–sample fit exercise, we present evidence that the hybrid
model outperforms the random walk benchmark.
Description
Masteroppgave(MSc) in Master of Science in Business, Finance - Handelshøyskolen BI, 2021