Heterogeneous expectations in the foreign exchange market
In this study a regime-switching approach is applied to estimate the chartist and fundamentalist (c&f) exchange rate model originally proposed by Frankel and Froot (1986). The c&f model is tested against alternative regime-switching specifications applying likelihood ratio tests. Nested atheoretical models like the popular segmented trends model suggested by Engel and Hamilton (1990) are rejected in favour of the multi-agent model. Our findings turned out to be relatively robust when assessing the models’ sub-sample estimates and out-of-sample performance. Copyright Springer-Verlag Berlin/Heidelberg 2004
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Volume (Year): 15 (2004)
Issue (Month): 1 (January)
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