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Do speculative traders anticipate or follow USD/EUR exchange rate movements? New evidence on the efficiency of the EUR currency futures market

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  • Hossfeld, Oliver
  • Röthig, Andreas

Abstract

We analyze whether various types of speculative investor correctly anticipate future USD/EUR currency movements or whether they tend rather to react to past exchange rate movements. In contrast to earlier studies, we account for the large number of tests conducted by comparing results based on individual significance tests with those based on controlling the false discovery rate (FDR) or the family-wise error rate (FER). While the evidence for speculative positions leading exchange rate movements, and therefore an inefficient EUR currency futures market, largely collapses if we account for multiple testing, such a pattern does not emerge in the other direction.

Suggested Citation

  • Hossfeld, Oliver & Röthig, Andreas, 2016. "Do speculative traders anticipate or follow USD/EUR exchange rate movements? New evidence on the efficiency of the EUR currency futures market," Finance Research Letters, Elsevier, vol. 18(C), pages 218-225.
  • Handle: RePEc:eee:finlet:v:18:y:2016:i:c:p:218-225
    DOI: 10.1016/j.frl.2016.04.019
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    Cited by:

    1. Martinez, Valeria & Tse, Yiuman, 2019. "The impact of tick-size reductions in foreign currency futures markets," Finance Research Letters, Elsevier, vol. 28(C), pages 32-38.
    2. Dömötör, Barbara, 2017. "Optimal hedge ratio in a biased forward market under liquidity constraints," Finance Research Letters, Elsevier, vol. 21(C), pages 259-263.

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    More about this item

    Keywords

    Speculative positions; Currency futures; Exchange rates; Predictive regressions; Multiple testing;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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