TITLE:
A Markov Approach to Exchange Rate Sentiment Analysis of Major Global Currencies
AUTHORS:
Kuthyar Shesha Madhava Rao, Anjana Ramachandran
KEYWORDS:
Ergodicity, Exchange Rates Sentiments, Markov Model, Transition Probability, Weekly and Monthly States
JOURNAL NAME:
Open Journal of Statistics,
Vol.6 No.6,
December
30,
2016
ABSTRACT: The paper deals with the analysis of
exchange rates sentiments. In the approach suggested here a typical exchange
rate sentiment is defined on the basis of certain function of mean and standard
error of the logarithm of the ratio of successive daily exchange rates. Based
on this surmise, the exchange rate sentiments are classified into various
states, whereby states are named according to the perceptions of the market
player. A Markov model is built to capture the uncertainties in exchange rates
sentiments. The approach advocated here will be of interest to researchers,
exchange rate traders and financial analysts. As an application of the proposed
line of approach, we analyse weekly and monthly exchange rate sentiments that
govern exchange rates of the major global currencies—EUR, GBP, SDR, YEN, ZAR,
USD, using data from 2001-2012. Some interesting conclusions are revealed based
on the data analysis approach advocated in this paper.