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

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  • 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.

Suggested Citation

  • Stephan Schulmeister, 2007. "Manic-depressive Price Fluctuations in the Financial Market – How Does the "Invisible Hand" Do it?," WIFO Working Papers 305, WIFO.
  • Handle: RePEc:wfo:wpaper:y:2007:i:305
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    References listed on IDEAS

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    10. Stephan Schulmeister, 2007. "The Profitability of Technical Stock Trading has Moved from Daily to Intraday Data," WIFO Working Papers 289, WIFO.
    11. repec:cdl:ucsbec:13-89 is not listed on IDEAS
    12. Lukas Menkhoff & Mark P. Taylor, 2007. "The Obstinate Passion of Foreign Exchange Professionals: Technical Analysis," Journal of Economic Literature, American Economic Association, vol. 45(4), pages 936-972, December.
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    Keywords

    Finanzmärkte; Handelstechniken; Wechselkursdynamik;

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