Expectations driven distortions in the foreign exchange market

Autor(en): Westerhoff, FH
Stichwörter: Business & Economics; Economics; exchange rate theory; expectations and learning; market efficiency; MODEL; NOISE; technical and fundamental trading rules
Erscheinungsdatum: 2003
Herausgeber: ELSEVIER SCIENCE BV
Journal: JOURNAL OF ECONOMIC BEHAVIOR & ORGANIZATION
Volumen: 51
Ausgabe: 3
Startseite: 389
Seitenende: 412
Zusammenfassung: 
This paper explores the phenomenon of lasting deviations of the exchange rate from its fundamental value in the foreign exchange market. Motivated by empirical observations a chartists-fundamentalists model is developed in which boundedly rational agents repeatedly choose between technical and fundamental trading rules to determine their speculative investment positions. Crucial for the dynamics is how the traders perceive the fundamental exchange rate. This perception process is based on psychological evidence. Simulations give rise to bubbles but simultaneously display quite realistic exchange rate dynamics (unit roots in the exchange rates, fat tails for returns, and volatility clustering). (C) 2002 Elsevier Science B.V. All rights reserved.
Beschreibung: 
7th International Conference of the Society-for-Computational-Economics-on-Computing-and-Finances, YALE UNIV, NEW HAVEN, CONNECTICUT, JUN, 2001
ISSN: 01672681
DOI: 10.1016/S0167-2681(02)00151-8

Show full item record

Google ScholarTM

Check

Altmetric