This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Do dollar forecasters believe too much in PPP?

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Lukas Menkhoff
Rafael Rebitzky
Michael Schröder

Additional information is available for the following registered author(s):

Abstract

This article extends earlier studies on exchange-rate expectations' formation by using new data and adding information about forecasters' reliance on fundamental analysis for the first time. We replicate the conventional result of nonrational expectations. Moreover, biases in expectations are identified as professionals significantly believe too much in mean reversion, mean being represented by purchasing power parity (PPP). When respondents are grouped on their reliance to fundamental analysis, fundamentalists reveal an even stronger bias. Those, who rely the least on fundamentals - preferring technical analysis instead - show a significantly smaller bias towards PPP in lieu of expecting too much trend extrapolation. Biased beliefs will grow stronger when the US Dollar is further away from PPP. Finally, the accuracy of the expectations is poor for both groups, however, we find directional forecasting ability.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. 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.

File URL: http://www.informaworld.com/openurl?genre=article&doi=10.1080/00036840500428153&magic=repec&7C&7C8674ECAB8BB840C6AD35DC6213A474B5
File Format: text/html
File Function:
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Publisher Info
Article provided by Taylor and Francis Journals in its journal Applied Economics.

Volume (Year): 40 (2008)
Issue (Month): 3 ()
Pages: 261-270
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:taf:applec:v:40:y:2008:i:3:p:261-270

Contact details of provider:
Web page: http://www.tandf.co.uk/journals/routledge/00036846.html

Order Information:
Web: http://www.tandf.co.uk/journals/subscription.html

For technical questions regarding this item, or to correct its listing, contact: (Christopher F. Baum).

Related research
Keywords:

Other versions of this item:

References listed on IDEAS
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.:
  1. Alan M. Taylor & Mark P. Taylor, 2004. "The Purchasing Power Parity Debate," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 135-158, Fall. [Downloadable!] (restricted)
    Other versions:
  2. Carlson, John A & Parkin, J Michael, 1975. "Inflation Expectations," Economica, London School of Economics and Political Science, vol. 42(166), pages 123-38, May. [Downloadable!] (restricted)
  3. Froot, Kenneth A & Thaler, Richard H, 1990. "Foreign Exchange," Journal of Economic Perspectives, American Economic Association, vol. 4(3), pages 179-92, Summer. [Downloadable!] (restricted)
  4. Francis X. Diebold & Jose A. Lopez, 1996. "Forecast Evaluation and Combination," NBER Technical Working Papers 0192, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Takatoshi Ito, 1990. "Foreign Exchange Rate Expectations: Micro Survey Data," NBER Working Papers 2679, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Cavaglia, Stefano & Verschoor, Willem F. C. & Wolff, Christian C. P., 1993. "Further evidence on exchange rate expectations," Journal of International Money and Finance, Elsevier, vol. 12(1), pages 78-98, February. [Downloadable!] (restricted)
  7. Frankel, Jeffrey A & Froot, Kenneth A, 1990. "Chartists, Fundamentalists, and Trading in the Foreign Exchange Market," American Economic Review, American Economic Association, vol. 80(2), pages 181-85, May. [Downloadable!] (restricted)
  8. Hansen, Lars Peter & Hodrick, Robert J, 1980. "Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis," Journal of Political Economy, University of Chicago Press, vol. 88(5), pages 829-53, October. [Downloadable!] (restricted)
  9. Taylor, Mark P, 1989. "Expectations, Risk and Uncertainty in the Foreign Exchange Market: Some Results Based on Survey Data," The Manchester School of Economic & Social Studies, Blackwell Publishing, vol. 57(2), pages 142-53, June.
  10. MacDonald, Ronald, 2000. " Expectations Formation and Risk in Three Financial Markets: Surveying What the Surveys Say," Journal of Economic Surveys, Blackwell Publishing, vol. 14(1), pages 69-100, February. [Downloadable!] (restricted)
  11. Menkhoff, Lukas & Schmidt, Ulrich, 2005. "The Use of Trading Strategies by Fund Managers: Some First Survey Evidence," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Universität Hannover dp-314, Universität Hannover, Wirtschaftswissenschaftliche Fakultät. [Downloadable!]
    Other versions:
  12. Mark P. Taylor, 1995. "The Economics of Exchange Rates," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 13-47, March. [Downloadable!] (restricted)
  13. Mark P. Taylor, 2003. "Purchasing Power Parity," Review of International Economics, Blackwell Publishing, vol. 11(3), pages 436-452, 08. [Downloadable!] (restricted)
  14. Kim, Suk-Joong, 1997. "Testing the Rationality of Exchange Rate and Interest Rate Expectations: An Empirical Study of Australian Survey-Based Expectations," Applied Economics, Taylor and Francis Journals, vol. 29(8), pages 1011-22, August. [Downloadable!] (restricted)
    Other versions:
  15. Benassy-Quere, Agnes & Larribeau, Sophie & MacDonald, Ronald, 2003. "Models of exchange rate expectations: how much heterogeneity?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 13(2), pages 113-136, April. [Downloadable!] (restricted)
  16. Peel, David & Sarno, Lucio & Taylor, Mark P, 2001. "Nonlinear Mean-Reversion in Real Exchange Rates: Towards a Solution to the Purchasing Power Parity Puzzles," CEPR Discussion Papers 2658, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  17. Jeffrey A. Frankel & Kenneth A. Froot, 1986. "Short-term and long-term expectations of the yen/dollar exchange rate: evidence from survey data," International Finance Discussion Papers 292, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  18. Takatoshi Ito, 1993. "Short-run and Long-run Expectations of the Yen/Dollar Exchange Rate," NBER Working Papers 4545, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  19. Thomas Gehrig & Lukas Menkhoff, 2006. "Extended evidence on the use of technical analysis in foreign exchange," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 11(4), pages 327-338. [Downloadable!]
  20. Audretsch, David B. & Stadtmann, Georg, 2005. "Biases in FX-forecasts: Evidence from panel data," Global Finance Journal, Elsevier, vol. 16(1), pages 99-111, August. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, 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.)

  1. Menkhoff, Lukas & Rebitzky, Rafael, 2007. "Investor sentiment in the US-dollar: longer-term, nonlinear orientation on PPP," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Universität Hannover dp-376, Universität Hannover, Wirtschaftswissenschaftliche Fakultät. [Downloadable!]
    Other versions:
Statistics
Access and download statistics

Did you know? RePEc and its associated services are free for contributors and users, and do not accept any advertising.

This page was last updated on 2009-12-5.


This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.