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The Rise of Fund Managers in Foreign Exchange: Will Fundamentals Ultimately Dominate?

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  • Gehrig, Thomas
  • Menkhoff,Lukas

Abstract

This paper analyzes the behaviour and motivation of fund managers in foreign exchange markets reflected in questionnaire evidence. We find that fund managers and FX dealers differ significantly. Fund managers rely more on fundamentals, basically due to their longer forecasting horizons, and reject non-fundamental influences on exchange rates more than FX dealers. However, neither can fund managers be considered as pure fundamentalists. Non-fundamentalist positions markedly influence short-term decision-making. They inspire ambivalent views about market imperfections and these views seem to become stronger over time. This latter change counterbalances the strengthening fundamental influences resulting from the rise of fund managers.

Suggested Citation

  • Gehrig, Thomas & Menkhoff,Lukas, 2004. "The Rise of Fund Managers in Foreign Exchange: Will Fundamentals Ultimately Dominate?," Hannover Economic Papers (HEP) dp-308, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    • Handle: RePEc:han:dpaper:dp-308
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    Cited by:

    1. Federico Bassi & Raquel Ramos & Dany Lang, 2023. "Bet against the trend and cash in profits: An agent-based model of endogenous fluctuations of exchange rates," Journal of Evolutionary Economics, Springer, vol. 33(2), pages 429-472, April.
    2. Fischer, Andreas M. & Isakova, Gulzina & Termechikov, Ulanbek, 2009. "Do FX traders in Bishkek have similar perceptions to their London colleagues?: Survey evidence of market practitioners' views," Journal of Asian Economics, Elsevier, vol. 20(2), pages 98-109, March.
    3. Lukas Menkhoff, 2010. "High‐Frequency Analysis Of Foreign Exchange Interventions: What Do We Learn?," Journal of Economic Surveys, Wiley Blackwell, vol. 24(1), pages 85-112, February.
    4. Schulmeister, Stephan, 2006. "The interaction between technical currency trading and exchange rate fluctuations," Finance Research Letters, Elsevier, vol. 3(3), pages 212-233, September.
    5. Lukas Menkhoff, 2013. "Foreign Exchange Intervention in Emerging Markets: A Survey of Empirical Studies," The World Economy, Wiley Blackwell, vol. 36(9), pages 1187-1208, September.
    6. Stephan Schulmeister, 2012. "Technical Trading and Commodity Price Fluctuations," WIFO Studies, WIFO, number 45238, April.
    7. Stephan Schulmeister, 2009. "Profitability of technical stock trading: Has it moved from daily to intraday data?," Review of Financial Economics, John Wiley & Sons, vol. 18(4), pages 190-201, October.
    8. Schulmeister, Stephan, 2009. "Aggregate trading behaviour of technical models and the yen/dollar exchange rate 1976-2007," Japan and the World Economy, Elsevier, vol. 21(3), pages 270-279, August.
    9. John Harvey, 2009. "Currency Market Participants' Mental Model and the Collapse of the Dollar: 2001-2008," Journal of Economic Issues, Taylor & Francis Journals, vol. 43(4), pages 931-949.
    10. Tweneboah Senzu, Emmanuel, 2020. "Modern currency exchange rate behaviour and proposed trend-like forecasting model," MPRA Paper 99933, University Library of Munich, Germany.
    11. Stephan Schulmeister, 2007. "The Interaction Between the Aggregate Behaviour of Technical Trading Systems and Stock Price Dynamics," WIFO Working Papers 290, WIFO.
    12. 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.
    13. Raquel Almeida Ramos & Federico Bassi & Dany Lang, 2020. "Bet against the trend and cash in profits," CEPN Working Papers halshs-02956879, HAL.
    14. Stephan Schulmeister, 2009. "Trading Practices and Price Dynamics in Commodity Markets and the Stabilising Effects of a Transaction Tax," WIFO Studies, WIFO, number 34919, April.
    15. Beckmann, Daniela & Menkhoff, Lukas & Sawischlewski, Katja, 2006. "Robust lessons about practical early warning systems," Journal of Policy Modeling, Elsevier, vol. 28(2), pages 163-193, February.
    16. Stephan Schulmeister, 2009. "Technical Trading and Trends in the Dollar-Euro Exchange Rate," WIFO Studies, WIFO, number 37582, April.
    17. Stephan Schulmeister, 2007. "Performance of Technical Trading Systems in the Yen/Dollar Market," WIFO Working Papers 291, WIFO.

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    More about this item

    Keywords

    foreign exchange; market microstructure; fund management; fundamentals;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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