Contrarian strategy and overreaction in foreign exchange markets
AbstractThis paper investigates patterns to assist investors to forecast future exchange rate movements. We test for overreaction and underreaction examining exchange rate changes following excess 1-day fluctuations for currencies in two emerging (Turkey, Brazil) and two developed (US, UK) countries. Using euro as the base currency, we identify that the Turkish lira, the Brazilian real and the US dollar overreact, while the British pound underreacts. In the case of British pound, asymmetric responses and lack of volatility are two crucial factors to reject overreaction. Also, we find that contrarian strategy can be used in all currency markets for profitable investments.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Elsevier in its journal Research in International Business and Finance.
Volume (Year): 22 (2008)
Issue (Month): 3 (September)
Contact details of provider:
Web page: http://www.elsevier.com/locate/ribaf
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Grant, James L. & Wolf, Avner & Yu, Susana, 2005. "Intraday price reversals in the US stock index futures market: A 15-year study," Journal of Banking & Finance, Elsevier, vol. 29(5), pages 1311-1327, May.
- Nam, Kiseok & Pyun, Chong Soo & Avard, Stephen L., 2001. "Asymmetric reverting behavior of short-horizon stock returns: An evidence of stock market overreaction," Journal of Banking & Finance, Elsevier, vol. 25(4), pages 807-824, April.
- Stephen J. Larson & Jeff Madura, 2003. "What Drives Stock Price Behavior Following Extreme One-Day Returns," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 26(1), pages 113-127.
- Peterson, David R, 1995. "The Influence of Organized Options Trading on Stock Price Behavior following Large One-Day Stock Price Declines," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 18(1), pages 33-44, Spring.
- Nicholas Barberis & Andrei Shleifer & Robert W. Vishny, 1997.
"A Model of Investor Sentiment,"
NBER Working Papers
5926, National Bureau of Economic Research, Inc.
- De Bondt, Werner F M & Thaler, Richard, 1985. " Does the Stock Market Overreact?," Journal of Finance, American Finance Association, vol. 40(3), pages 793-805, July.
- Akhigbe, Aigbe & Gosnell, Thomas & Harikumar, T, 1998. "Winners and Losers on NYSE: A Re-examination Using Daily Closing Bid-Ask Spreads," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 21(1), pages 53-64, Spring.
- Wan, Jer-Yuh & Kao, Chung-Wei, 2009. "Evidence on the contrarian trading in foreign exchange markets," Economic Modelling, Elsevier, vol. 26(6), pages 1420-1431, November.
If references are entirely missing, you can add them using this form.