Econometric model for Intraday Trading on the Spot Foreign Exchange Market, Considering Heavy Tails and Volatility Clustering

The research analyzes aspects of the spot forex intraday trading and the existing models based on macro fundamentals or describing market microstructure. Most of analysis is done on high frequency data, over an extensive period and on 70 currency pairs. A hybrid model based on microstructure approach was proposed. GARCH approach is used to reflect the volatility clustering, and alpha-stable distributions describe the heavy tails behavior. The new model outperforms the previously existing models.