Advanced Search
MyIDEAS: Login to save this paper or follow this series

Chartists and Fundamentalists in the Currency Market and the Volatility of Exchange Rates

Contents:

Author Info

  • Bask, Mikael

    ()
    (Department of Economics, Umeå University)

Abstract

The purpose of this paper is to implement theoretically, the empirical observation that the relative importance of fundamental versus technical analysis in the foreign exchange market depends on the planning horizon. For shorter planning horizons, more weight is placed on technical analysis, while more weight is placed on fundamental analysis for longer planning horizons. The theoretical framework is the Dornbusch (1976) overshooting model. The perfect foresight path near long-run equilibrium is derived, and it is shown that the magnitude of exchange rate overshooting is larger than in the Dornbusch (1976) model. Specifically, the extent of overshooting depends inversely on the planning horizon.

Download Info

If 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.
File URL: http://www.econ.umu.se/DownloadAsset.action?contentId=62693&languageId=3&assetKey=ues605
Download Restriction: no

Bibliographic Info

Paper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 605.

as in new window
Length: 20 pages
Date of creation: 14 Feb 2003
Date of revision:
Handle: RePEc:hhs:umnees:0605

Contact details of provider:
Postal: Department of Economics, Umeå University, S-901 87 Umeå, Sweden
Phone: 090 - 786 61 42
Fax: 090 - 77 23 02
Email:
Web page: http://www.econ.umu.se/
More information through EDIRC

Related research

Keywords: Chartists; Excess Volatility; Foreign Exchange; Fundamentalists; Moving Averages; Overshooting; Technical Analysis;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Mark, Nelson C, 1995. "Exchange Rates and Fundamentals: Evidence on Long-Horizon Predictability," American Economic Review, American Economic Association, vol. 85(1), pages 201-18, March.
  2. Jeremy Berkowitz & Lorenzo Giorgianni, 1996. "Long-horizon exchange rate predictability?," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 96-39, Board of Governors of the Federal Reserve System (U.S.).
  3. Flood, R.P. & Rose, A.K., 1992. "Fixing Exchange Rates: A Virtual Quest for Fundamentals," Papers, Stockholm - International Economic Studies 529, Stockholm - International Economic Studies.
  4. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February.
  5. Yin-Wong Cheung & Menzie D. Chinn, 2000. "Currency Traders and Exchange Rate Dynamics: A Survey of the U.S. Market," CESifo Working Paper Series 251, CESifo Group Munich.
  6. MacDonald, Ronald, 1999. "Exchange Rate Behaviour: Are Fundamentals Important?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 109(459), pages F673-91, November.
  7. Lui, Yu-Hon & Mole, David, 1998. "The use of fundamental and technical analyses by foreign exchange dealers: Hong Kong evidence," Journal of International Money and Finance, Elsevier, Elsevier, vol. 17(3), pages 535-545, June.
  8. Flood, Robert P & Rose, Andrew K, 1998. "Understanding Exchange Rate Volatility Without the Contrivance of Macroeconomics," CEPR Discussion Papers 1944, C.E.P.R. Discussion Papers.
  9. Taylor, Mark P. & Allen, Helen, 1992. "The use of technical analysis in the foreign exchange market," Journal of International Money and Finance, Elsevier, Elsevier, vol. 11(3), pages 304-314, June.
  10. Frankel, Jeffrey A & Froot, Kenneth A, 1986. "Understanding the U.S. Dollar in the Eighties: The Expectations of Chartists and Fundamentalists," The Economic Record, The Economic Society of Australia, vol. 0(0), pages 24-38, Supplemen.
  11. Laurence Ball, 1998. "Another Look at Long-Run Money Demand," NBER Working Papers 6597, National Bureau of Economic Research, Inc.
  12. Bask, Mikael & de Luna, Xavier, 2001. "Characterizing the degree of stability of non-linear dynamic models," Umeå Economic Studies 564, Umeå University, Department of Economics.
  13. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 84(6), pages 1161-76, December.
  14. Rogoff, Kenneth, 1999. "Monetary Models of Dollar/Yen/Euro Nominal Exchange Rates: Dead or Undead?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 109(459), pages F655-59, November.
  15. Dixon, Huw D, 1999. "Controversy: Exchange Rates and Fundamentals," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 109(459), pages F652-54, November.
  16. Cheung, Yin-Wong & Wong, Clement Yuk-Pang, 2000. "A survey of market practitioners' views on exchange rate dynamics," Journal of International Economics, Elsevier, vol. 51(2), pages 401-419, August.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Mikael Bask, 2003. "Technical Trading at the Currency Market Increases the Overshooting Effect," Finnish Economic Papers, Finnish Economic Association, Finnish Economic Association, vol. 16(2), pages 72-80, Autumn.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:hhs:umnees:0605. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kjell-Göran Holmberg).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.