IDEAS home Printed from https://ideas.repec.org/p/hal/journl/halshs-00081586.html
   My bibliography  Save this paper

Switching Between Expectation Processes in the Foreign Exchange Market: A Probabilistic Approach Using Survey Data

Author

Listed:
  • Georges Prat

    (EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Remzi Uctum

    (EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper relaxes a fundamental hypothesis commonly accepted in the expectation formation literature: expectations are, unchangingly, either rational or generated by one of the three simple extrapolative, regressive or adaptive processes. Using expectations survey data provided by Consensus Forecasts on six European exchange rates against the US Dollar, we find that the rational expectations hypothesis is rejected at the aggregate level. By implementing a switching regression methodology with stochastic choice of regime, we show that the expectation generating process is given at any time by some combination of the three simple processes. An interpretation of this framework in terms of economically rational expectations is suggested.

Suggested Citation

  • Georges Prat & Remzi Uctum, 2007. "Switching Between Expectation Processes in the Foreign Exchange Market: A Probabilistic Approach Using Survey Data," Post-Print halshs-00081586, HAL.
  • Handle: RePEc:hal:journl:halshs-00081586
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00081586
    as

    Download full text from publisher

    File URL: https://halshs.archives-ouvertes.fr/halshs-00081586/document
    Download Restriction: no

    Other versions of this item:

    Citations

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


    Cited by:

    1. Georges Prat & Remzi Uctum, 2014. "Expectation formation in the foreign exchange market: a time-varying heterogeneity approach using survey data," EconomiX Working Papers 2014-17, University of Paris Nanterre, EconomiX.
    2. Prat, Georges & Uctum, Remzi, 2011. "Modelling oil price expectations: Evidence from survey data," The Quarterly Review of Economics and Finance, Elsevier, vol. 51(3), pages 236-247, June.
    3. Prat, Georges & Uctum, Remzi, 2013. "Modeling the horizon-dependent ex-ante risk premium in the foreign exchange market: Evidence from survey data," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 23(C), pages 33-54.
    4. Georges Prat & Remzi Uctum, 2012. "Modeling the horizon-dependent risk premium in the forex market: evidence from survey data," EconomiX Working Papers 2012-29, University of Paris Nanterre, EconomiX.
    5. Uctum, Remzi, 2007. "Économétrie des modèles à changement de régimes : un essai de synthèse," L'Actualité Economique, Société Canadienne de Science Economique, vol. 83(4), pages 447-482, décembre.
    6. ter Ellen, Saskia & Verschoor, Willem F.C. & Zwinkels, Remco C.J., 2013. "Dynamic expectation formation in the foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 75-97.
    7. Neslihan Topbas, 2014. "Tests of Rationality in Turkish Foreign Exchange Market," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 14(2), pages 65-78.
    8. Jongen, Ron & Verschoor, Willem F.C. & Wolff, Christian C.P. & Zwinkels, Remco C.J., 2012. "Explaining dispersion in foreign exchange expectations: A heterogeneous agent approach," Journal of Economic Dynamics and Control, Elsevier, vol. 36(5), pages 719-735.
    9. Imane El Ouadghiri, 2015. "Heterogeneity in Macroeconomic News Expectations: A disaggregate level analysis," EconomiX Working Papers 2015-17, University of Paris Nanterre, EconomiX.

    More about this item

    Keywords

    expectation formation; switching-regime; exchange rates; survey data; cost and advantage analysis;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:journl:halshs-00081586. 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: (CCSD). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.