Economic Fundamentals Over Long and Short Horizons

Ali Tfaily
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Ali Tfaily: Bucharest University of Economic Studies

REVISTA DE MANAGEMENT COMPARAT INTERNATIONAL/REVIEW OF INTERNATIONAL COMPARATIVE MANAGEMENT, 2018, vol. 19, issue 2, 167-174

Abstract: In this paper, the idea that economic fundamentals should hold over all horizons is put to the test by focusing on the dynamics of the foreign exchange market. An empirical proof that the foreign exchange market follows economic fundamentals over long horizons but not over short horizons is presented. This can be generalized to other markets such as stocks or commodities, which are mostly driven by speculations and investors’ expectations over short horizons but follow economic fundamentals over long horizons. This is especially true for highly volatile assets where the high volatility masks the economic fundamentals over the short run.

Keywords: Foreign Exchange Market; Exchange Rate; Uncovered Interest Rate Parity; Covered Interest Rate Parity; Economic Fundamentals. (search for similar items in EconPapers)
JEL-codes: F12 F17 F31 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:rom:rmcimn:v:19:y:2018:i:2:p:167-174

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