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Nonlinear expectations in speculative markets - Evidence from the ECB survey of professional forecasters

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Author Info

  • Reitz, Stefan

    ()
    (Institute for Quantitative Business and Economics Research)

  • Rülke, Jan-Christoph

    (Department of Economics)

  • Stadtmann, Georg

    ()
    (Department of Business and Economics)

Abstract

Chartist and fundamentalist models have proven to be capable of replicating stylized facts on speculative markets. In general, this is achieved by specifying nonlinear interactions of otherwise linear asset price expectations of the respective trader groups. This paper investigates whether or not regressive and extrapolative expectations themselves exhibit significant nonlinear dynamics. The empirical results are based on a new data set from the European Central Bank Survey of Professional Forecasters on oil price expectations. In particular, we find that forecasters form destabilizing expectations in the neighborhood of the fundamental value, whereas expectations tend to be stabilizing in the presence of substantial oil price misalignment.

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Bibliographic Info

Paper provided by Department of Business and Economics, University of Southern Denmark in its series Discussion Papers of Business and Economics with number 1/2012.

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Length: 38 pages
Date of creation: 03 Jan 2012
Date of revision:
Handle: RePEc:hhs:sdueko:2012_001

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Postal: Department of Business and Economics, University of Southern Denmark, Campusvej 55, DK-5230 Odense M, Denmark
Phone: 65 50 32 33
Fax: 65 50 32 37
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Web page: http://www.sdu.dk/ivoe
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Keywords: Agent based models; nonlinear expectations; survey data;

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Cited by:
  1. Christian D. Dick & Lukas Menkhoff, 2013. "Exchange Rate Expectations of Chartists and Fundamentalists," CESifo Working Paper Series 4181, CESifo Group Munich.

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