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Manic-depressive Price Fluctuations in the Financial Market – How Does the "Invisible Hand" Do it?

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Author Info

  • Stephan Schulmeister

    (WIFO)

Abstract

Speculative markets such as those for stocks or currencies typically have an extremely short time horizon for transactions. Yet at the same time, stock prices and exchange rates go up or down in trend curves of several years ("bull" and "bear" markets). The paper takes the dollar/euro exchange rate to study how short-term price movements accumulate to produce long-term trends. It found that speculative prices fluctuate around "underlying trends". The "trending" phenomenon repeats iself along a range of time scales. Long-term trends develop from the accumulation of price waves based on daily rates which continue longer in one direction than the other across several years. A succession of such trends produces a pattern typical for the long-term dynamism of speculative prices: they vary in irregular cycles across a factual balance range without inclining to converge towards that balance.

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Bibliographic Info

Paper provided by WIFO in its series WIFO Working Papers with number 305.

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Length: 22 pages
Date of creation: 18 Oct 2007
Date of revision:
Handle: RePEc:wfo:wpaper:y:2007:i:305

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Related research

Keywords: Finanzmärkte; Handelstechniken; Wechselkursdynamik;

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References

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  1. Stephan Schulmeister, 2005. "The Interaction between Technical Currency Trading and Exchange Rate Fluctuations," Finance 0512033, EconWPA.
  2. Alan M. Taylor & Mark P. Taylor, 2004. "The Purchasing Power Parity Debate," NBER Working Papers 10607, National Bureau of Economic Research, Inc.
  3. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
  4. Menkhoff, Lukas & Taylor, Mark P., 2006. "The Obstinate Passion of Foreign Exchange Professionals: Technical Analysis," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Leibniz Universität Hannover dp-352, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  5. Stephan Schulmeister, 2007. "The Profitability of Technical Stock Trading has Moved from Daily to Intraday Data," WIFO Working Papers 289, WIFO.
  6. LeRoy, Stephen F, 1989. "Efficient Capital Markets and Martingales," Journal of Economic Literature, American Economic Association, vol. 27(4), pages 1583-1621, December.
  7. Ian Marsh & Menzie Chinn & Yin-Wong Cheung, 1999. "How do UK-Based Foreign Exchange Dealers Think Their Market Operates?," Working Papers wp99-21, Warwick Business School, Finance Group.
  8. 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.
  9. repec:fth:calaec:13-89 is not listed on IDEAS
  10. John H. Cochrane, 1999. "New facts in finance," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 36-58.
  11. Robert J. Shiller, 2003. "From Efficient Markets Theory to Behavioral Finance," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 83-104, Winter.
  12. Robert J. Shiller, 1998. "Human Behavior and the Efficiency of the Financial System," NBER Working Papers 6375, National Bureau of Economic Research, Inc.
  13. Engel, Charles & Hamilton, James D, 1990. "Long Swings in the Dollar: Are They in the Data and Do Markets Know It?," American Economic Review, American Economic Association, vol. 80(4), pages 689-713, September.
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