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Heterogeneity in exchange rate expectations: Evidence on the chartist-fundamentalist approach

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Author Info
Menkhoff, Lukas
Rebitzky, Rafael R.
Schröder, Michael

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Abstract

This paper examines heterogeneity in exchange rate expectations. Whereas agents' heterogeneity is key in modern exchange rate models, evidence on determinants of heterogeneity is weak thus far. Our sample, covering expectations from about 300 forecasters over 15 years, shows remarkable time variation in dispersion. Determinants of dispersion are consistent with the chartist-fundamentalist approach: misalignments of the exchange rate and exchange rate changes explain heterogeneity. The risk premium influences heterogeneity as well, but possible impacts from macroeconomic variables and exchange rate's volatility are dominated by the other determinants.

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File URL: http://www.sciencedirect.com/science/article/B6V8F-4VFK7RD-1/2/c0e227201efe4f0ac801c87f3dc638e3
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Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 70 (2009)
Issue (Month): 1-2 (May)
Pages: 241-252
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Handle: RePEc:eee:jeborg:v:70:y:2009:i:1-2:p:241-252

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Keywords: Exchange rate Heterogeneity Dispersion Chartists Fundamentalists;

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  3. Frank H. Westerhoff & Stefan Reitz, 2003. "Nonlinearities and Cyclical Behavior: The Role of Chartists and Fundamentalists," Studies in Nonlinear Dynamics & Econometrics, Berkeley Electronic Press, vol. 7(4). [Downloadable!]
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  14. De Grauwe, Paul & Grimaldi, Marianna, 2006. "Exchange rate puzzles: A tale of switching attractors," European Economic Review, Elsevier, vol. 50(1), pages 1-33, January. [Downloadable!] (restricted)
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  1. Gloede, Oliver & Menkhoff, Lukas, 2009. "Financial professionals' overconfidence: Is it experience, job, or attitude?," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Universität Hannover dp-428, Universität Hannover, Wirtschaftswissenschaftliche Fakultät. [Downloadable!]
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