Heterogeneous expectations in the foreign exchange market

Ralf Ahrens and Stefan Reitz

Journal of Evolutionary Economics, 2004, vol. 15, issue 1, 65-82

Abstract: In this study a regime-switching approach is applied to estimate the chartist and fundamentalist (c&f) exchange rate model originally proposed by Frankel and Froot (1986). The c&f model is tested against alternative regime-switching specifications applying likelihood ratio tests. Nested atheoretical models like the popular segmented trends model suggested by Engel and Hamilton (1990) are rejected in favour of the multi-agent model. Our findings turned out to be relatively robust when assessing the models’ sub-sample estimates and out-of-sample performance. Copyright Springer-Verlag Berlin/Heidelberg 2004

Keywords: Exchange rates; Multi agent models; Markov regime-switching (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s00191-004-0206-z

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