14 research outputs found
Sentiment in foreign exchange markets: Hidden fundamentals by the back door or just noise?
Foreign exchange markets have to deal next to hard facts with lots of expectations and emo-tions. One of the major puzzles in international finance remains the ĂąâŹĆexchange rate discon-nect puzzleĂąâŹ. Analyzing sentiment in foreign exchange markets, it appears in fact that senti-ment contains some forward looking information. Particularly due to the unknown economic relevance of sentiment in foreign exchange markets so far, we first analyze the relationship between fundamentals and sentiment in order to reveal underlying forces of the latter; sec-ond we accomplish our analysis by concentrating on popular expectation concepts and con-sidering threshold effects. Third, we evaluate sentiment by testing on accuracy and on for-ward looking elements of subsequent exchange rate returnsForeign exchange market, sentiment, bootstrap, threshold
Heterogeneity in Exchange Rate Expectations: Evidence on the Chartist-Fundamentalist Approach
This paper examines heterogeneity in exchange rate expectations. Whereas agentsâ heterogeneity is key in modern exchange rate models, evidence on determinants of heterogeneity is weak so far. Our sample, covering expectations from about 300 forecasters over 15 years, shows remarkable time variation in dispersion. Determinants of dispersion are consistent with the chartist-fundamentalist approach: misalignments of the exchange rate and exchange rate changes explain heterogeneity. The risk premium influences heterogeneity as well, but possible impacts from macroeconomic variables and exchange rateâs volatility are dominated by the other determinants.exchange rate, heterogeneity, dispersion, chartists, fundamentalists
Exchange Rate Forecasters' Performance: Evidence of Skill?
This paper sheds new light on a long-standing puzzle in the international finance literature, namely, that exchange rate expectations appear inaccurate and even irrational. We find for a comprehensive dataset that individual forecastersâ performance is skill-based. âSuperiorâ forecasters show consistent ability as their forecasting success holds across currencies. They seem to possess knowledge on the role of fundamentals in explaining exchange rate behavior, as indicated by better interest rate forecasts. Superior forecasters are more experienced than the median forecaster and have fewer personnel responsibilities. Accordingly, foreign exchange markets may function in less puzzling and irrational ways than is often thought.foreign exchange market, individual exchange rate forecasts, interest rate forecasts, forecaster experience
Exchange rate forecastersâ performance: evidence of skill?
IThis paper sheds new light on a long-standing puzzle in the international finance literature, namely, that exchange rate expectations appear inaccurate and even irrational. We find for a comprehensive dataset that individual forecastersâ performance is skill-based. âSuperiorâ fore-casters show consistent ability as their forecasting success holds across currencies. They seem to possess knowledge on the role of fundamentals in explaining exchange rate behavior, as indicated by better interest rate forecasts. Superior forecasters are more experienced than the median forecaster and have fewer personnel responsibilities. Accordingly, foreign exchange markets may function in less puzzling and irrational ways than is often thought.Foreign exchange market; individual exchange rate forecasts; interest rate forecasts; forecaster experience
Heterogeneity in exchange rate expectations: evidence on the chartist-fundamentalist approach
"This paper examines heterogeneity in exchange rate expectations. Whereas agentsâ heterogeneity is key in modern exchange rate models, evidence on determinants of heterogeneity is weak thus far. Our sample, covering expectations from about 300 forecasters over 15 years, shows remarkable time variation in dispersion. Determinants of dispersion are consistent with the chartist-fundamentalist approach: misalignments of the exchange rate and exchange rate changes explain heterogeneity. The risk premium influences heterogeneity as well, but possible impacts from macroeconomic variables and exchange rate's volatility are dominated by the other determinants." [author's abstract
Exchange rate forecastersâ performance: evidence of skill?
This paper sheds new light on a long-standing puzzle in the international finance literature, namely, that exchange rate expectations appear inaccurate and even irrational. We find for a comprehensive dataset that individual forecastersâ performance is skill-based. âSuperiorâ forecasters show consistent ability as their forecasting success holds across currencies. They seem to possess knowledge on the role of fundamentals in explaining exchange rate behavior, as indicated by better interest rate forecasts. Superior forecasters are more experienced than the median forecaster and have fewer personnel responsibilities. Accordingly, foreign exchange markets may function in less puzzling and irrational ways than is often thought
Investor sentiment in the US-dollar: longer-term, nonlinear orientation on PPP
How is it possible that exchange rates move in the long run towards fundamentals, while professionals form consistently irrational exchange rate expectations? We look at this puzzle from a different perspective by analyzing investor sentiment in the US-dollar market. First, long-horizon regressions show that investor sentiment is connected with exchange rate returns at longer horizons, i.e. more than two years. Second, sentiment is cointegrated with fundamentals, whereas third, this relation becomes stronger, the larger exchange rate's misalignment from long-run PPP. In sum, investor sentiment's behavior in the US-dollar market closely matches with established facts of empirical exchange rate research.Exchange rates, investor sentiment, long-horizon regression, threshold VECM
Investor sentiment in the US-dollar: Longer-term, non-linear orientation on PPP
How is it possible that exchange rates move in the long run towards fundamentals, while professionals form consistently irrational exchange rate expectations? We look at this puzzle from a different perspective by analyzing investor sentiment in the US-dollar market. First, long-horizon regressions show that investor sentiment is connected with exchange rate returns at longer horizons, i.e. more than two years. Second, sentiment is cointegrated with fundamentals, whereas third, this relation becomes stronger, the larger exchange rate's misalignment from long-run PPP. In sum, investor sentiment's behavior in the US-dollar market closely matches with established facts of empirical exchange rate research.