Representativeness of news and exchange rate dynamics

Autor(en): Manzan, S
Westerhoff, F
Stichwörter: ANNOUNCEMENTS; Business & Economics; Economics; exchange rates; INVESTOR PSYCHOLOGY; MARKET; MODEL; news arrival; over- and underreaction; representativeness heuristic
Erscheinungsdatum: 2005
Herausgeber: ELSEVIER
Journal: JOURNAL OF ECONOMIC DYNAMICS & CONTROL
Volumen: 29
Ausgabe: 4
Startseite: 677
Seitenende: 689
Zusammenfassung: 
Guided by psychological evidence, we develop a behavioral exchange rate model in which investors' perception of fundamental shocks switches between two states. According to the representativeness heuristic, agents underestimate the informational content of news in calm periods, whereas they overreact to news if they encounter a series of distinct exchange rate changes. Simulations indicate that the model mimics the behavior of actual exchange rates quite well. For instance, we observe fat tails for the distribution of the returns and volatility clustering. (c) 2004 Elsevier B.V. All rights reserved.
Beschreibung: 
Workshop on Economic Dynamics, Leiden, NETHERLANDS, JUN, 2002
ISSN: 01651889
DOI: 10.1016/j.jedc.2003.08.008

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