Uncertainty aversion in a heterogeneous agent model of foreign exchange rate formation
Roman Kozhan () and
Mark Salmon
Journal of Economic Dynamics and Control, 2009, vol. 33, issue 5, 1106-1122
Abstract:
This paper provides what we believe to be the first empirical test of whether investors in the foreign exchange market are uncertainty averse. We do this using a heterogeneous agents model in which fundamentalist and chartist beliefs of the exchange rate co-exist and are allowed to be either uncertainty neutral or uncertainty averse. Uncertainty aversion is modelled using the maxmin expected utility approach. We find significant evidence of uncertainty aversion in the FX market where in particular fundamentalists are found to be largely uncertainty neutral while chartists are mainly uncertainty averse. Inclusion of uncertainty averse agents significantly improves the empirical performance of the model.
Keywords: Uncertainty; aversion; Exchange; rate; formation; Heterogeneous; agents (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)
Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165-1889(09)00032-3
Full text for ScienceDirect subscribers only
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:33:y:2009:i:5:p:1106-1122
Access Statistics for this article
Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok
More articles in Journal of Economic Dynamics and Control from Elsevier
Bibliographic data for series maintained by Catherine Liu ().