Chartists and Fundamentalists in the Currency Market and the Volatility of Exchange Rates
AbstractThe 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.
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Bibliographic InfoPaper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 605.
Length: 20 pages
Date of creation: 14 Feb 2003
Date of revision:
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
Web page: http://www.econ.umu.se/
More information through EDIRC
Chartists; Excess Volatility; Foreign Exchange; Fundamentalists; Moving Averages; Overshooting; Technical Analysis;
Find related papers by JEL classification:
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-02-18 (All new papers)
- NEP-CBA-2003-02-18 (Central Banking)
- NEP-FIN-2003-02-18 (Finance)
- NEP-FMK-2003-02-18 (Financial Markets)
- NEP-IFN-2003-02-18 (International Finance)
- NEP-MAC-2003-02-18 (Macroeconomics)
- NEP-RMG-2003-02-18 (Risk Management)
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.:
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